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Nordic selectors find better returns in illiquids

Railway tracks and trains in Stockholm, Sweden

Nordic fund selectors placed illiquid strategies as their favourite asset classes in Q1 this year with infrastructure at the top, according to Last Word Research.

The quarterly asset class survey found that three of the top five favourite asset classes were illiquid assets.

Out of 26 asset classes, infrastructure funds took the top spot in popularity, followed by private equity. Private debt was fourth most popular and with global emerging markets ahead of it.

For infrastructure funds 30% of Nordic selectors looked to increase their allocation over the 12 months to March 2020. Another 23% looked to hold, 2% to decrease, and 45% did not use the asset class.

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Source: Last Word Research

Similarly, 30% looked to increase private equity, 31% to hold, 6% to decrease, and 33% did not use the asset class.

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Source: Last Word Research

For private debt, 32% looked to increase, 15% to hold, 7% to decrease, and 53% did not use the asset class.

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Source: Last Word Research

Sentiment for all three asset classes from the Nordics was noticeably higher than the average pan-European sentiment.

Better returns and opportunities

Max Matthiessen portfolio manager, Anders Carlsson, said that over the long run illiquid assets offered better returns and opportunities.

The Stockholm-based selector said illiquid assets were on average cheaper to buy, had lower price-earnings, and were generally a better investment over the longer term if the investor did not need liquidity and did not need to sell.

Carlsson said he liked private equity, infrastructure, healthcare, and technology.

He added that demographic shifts in developed parts of the world meant that demand for all aspects of healthcare was set to increase.

“A lot of Infrastructure in the west is old but it has high growth in emerging markets through the construction of infrastructure, ports, roads, railways and harbours,” he said.

Carlsson added that the growth in electric vehicles and renewable-energy generation had increased the need for electricity-related infrastructure.

Selling and liquidity

Selectors looking to buy illiquid strategies should make sure that they have enough liquidity in case they are forced to sell, Carlsson added.

“As they are illiquid they are not easy to sell. It’s important to not put yourself in a forced selling position,” he said.

“Where investors don’t need liquidity, I think it’s better to invest in illiquid assets.”




Jassmyn Goh

Jassmyn reported from Sydney to New York to Jakarta before joining Expert Investor. She was most recently Features Editor at Money Management and Super Review in Sydney.

Part of the Mark Allen Group.