Pension

£30bn pension fund moves investment to US as chaos in Europe mounts

After Italian referendum result, a series of upcoming elections across continent look set to be characterised by anti-establishment backlash following years of austerity and growing tension over immigration.

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By Ben Chapman

A £30 billion fund manager is shifting investment to America as Europe lurches from one crisis to another while belief in a Donald Trump boom grows.

“Overall, the weighting toward US assets will increase,” Timo Ritakallio, boss of Ilmarinen, one of the Nordic region’s biggest funds, told Bloomberg. “We’re monitoring the geographic dynamic and are putting more focus on the US market, and moving away from the eurozone,” he said.

In Europe, the issue is the “very poor outlook for the whole economy, because this 1-1.5 per cent growth rate will continue for a long time,” Ritakallio said. “It has a very negative impact.

The continent was rocked after Italian Prime Minister Matteo Renzi quit in the early hours of Monday following a heavy loss in a referendum on constitutional reform. The outcome threatens to trigger a new wave of political and financial chaos for Europe.

While Austrian voters refused to give power to populist far-right leader Norbert Hofer, a series of upcoming elections across the continent look set to be characterised by an anti-establishment backlash after years of austerity, and on the back of a migrant crisis fed by the war in

Geert Wilders is seeking to form a government in the Dutch parliamentary vote next March, on the back of a promise to “de-islamise” the west. Meanwhile Marine Le Pen, of France’s Front National, has polled strongly in preliminary rounds of the presidential election there. Her anti-EU, anti-immigration stance could serve to rattle markets in the run-up to the election if a victory looks possible.

In contrast, many analysts expect the dollar to continue appreciating next year, if President-elect Donald Trump makes good on his promise of an infrastructure spending spree.

The plan could boost US growth, which has been stuck at around 2 per cent for most of the post-financial crisis era. The retail tycoon’s policies are likely to lead to faster inflation and greater instability, analysts have said.

Pension funds like Ilmarinen are growing desperate for returns after years of ultra-low interest rates. Given the environment, outsourcing investment decisions to hedge funds is considerably less appealing than it once was, Ritakallio told Bloomberg.

“It’s more and more important to look at the cost level of different investment instruments,” he said. “Specifically, I mean very expensive asset managers like hedge funds. We only have 2 percent of our total assets in hedge funds.”

“In my view, the hedge fund industry probably will struggle next year again because their current cost structure is too high, from an investor’s point of view, given the low-return environment,” Ritakallio said.

Additional reporting by Bloomberg

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