By Hamlin Lovell, NordicInvestor
NordicInvestor interviewed Tapio Koivu, who has been Portfolio Manager at Veritas Pension Insurance Company since 2018. He was previously at Elite Varainhoito Oyj and earlier at Eufex Bank.
Veritas had 37.5% allocated to listed equities at the end of March 2025, slightly down from 40.6% at the end of 2024 “Exposure can be adjusted in line with target weights, short term tactical views and the solvency framework, which also determines the appropriate level of risk,” says Koivu.
One third of this is managed in house by three portfolio managers and two thirds is managed externally. The external allocations are 75% passive and 25% active, including roughly ten managers mainly in emerging markets. The external managers are predominantly fundamental traditional ones, though there are two systematic managers.
Return targets for long term strategic equity allocations
Veritas aim to beat their benchmark, which is roughly MSCI World but with a home bias to Finland. “Alpha targets range from zero for index funds to as much as 3% for active funds in emerging markets or small caps, but not for all cap or large cap managers. The weighted average outperformance target is between 0.50% and 1% per year, to try and beat a passive benchmark net of fees,” says Koivu.
The asset class level return forecast for equities is between 7-8%, in line with the long term average for equities. “This might be adjusted up or down for individual years but we maintain a long term strategic holding in equities anyway,” says Koivu.
The erratic nature of recent US policy actions has heightened geopolitical risk. “While this is a concern, the situation remains fluid and outcomes are difficult to predict. We continue to monitor developments closely, but at this stage, it’s too early to draw firm conclusions about the long-term implications,” says Koivu.
Recent geopolitical events including the trade war have not changed the long term forecast. “Recent macroeconomic developments and heightened volatility have undoubtedly increased short-term uncertainty. In the near term, I anticipate a drag on earnings and believe a higher equity risk premium is warranted to reflect the elevated risk environment. However, these developments are not substantial enough to alter long-term return expectations, which remain grounded in structural fundamentals,” says Koivu.
Traditional and standardised market-cap weighted benchmarks are used, and they can include small cap benchmarks. ESG or sustainable benchmarks could be used in future.
US versus Europe: valuations and market efficiency
He recognises that relatively high US equity valuations are a big part of the global equity market, and a possible argument for reducing the return target, while Europe and the rest of the world do not have such challenging valuations. There is potential for some mean reversion as seen so far in 2025. “US outperformance can clearly be explained by a more dynamic and innovative economy so the US could continue to outperform long term, but we would not expect such a big gap as over the last 10-15 years. In the short to medium term it should normalise and Europe and the rest of the world could catch up over the next two years. We have already seen Europe outperforming over 2025 to date. Europe clearly has more attractive valuations and is starting to see a positive sentiment shift,” notes Koivu.
“The top risks we see now are both US-equity related: President Trump, and the extreme concentration in tech and AI MAG 7 names,” says Koivu. Veritas is not forced to hold a huge US weighting due to the US 70% weight in MSCI World. Their allocations already have more in Finnish equities and there is also flexibility outside Finland.
Though the top down US allocation percentage can be smaller, it still has high weightings in mega caps because index trackers are used. US allocations have historically been more passive in large caps, since it is the most efficient market. “We have lowest conviction in active management adding value. This might however change if we come back to a more normal environment,” says Koivu.
Shift to emerging market stockpickers
In contrast in emerging markets the range of countries and companies is so wide that it is more interesting or active stockpickers. “We would rather find fund managers who can pick stocks anywhere in emerging markets than make country allocations,” says Koivu.
Geographic and factor tilts
Emerging markets are however something of an exception. “Historically we had relied on more active management and stock-picking but now we have much lower expectations for it. We would rather try to make up the difference through being more active in geographic allocations and factor exposure, as tactical allocations on top of our core index portfolio,” explains Koivu.
There is some flexibility around styles and factors. A “quality” tilt is quite common. “It is natural for managers to want to do their own thing. We try to control factor exposures at portfolio level but do not need to be factor neutral,” points out Koivu.
Most of the index allocation is pure passive though there are some enhanced mandates that can tilt to certain factors.
Cautious on sector or thematic strategies
Style and factor tilts are sometimes associated with sectors or themes but they are also different. “We avoid sector specialists because they can be too volatile and go in and out of fashion. The same concerns apply to thematic strategies, which would only be a tactical bet and not a structural part of the portfolio,” says Koivu.
ESG: engagement not exclusions
Veritas is relatively unusual in not having any exclusions for ESG reasons. “We think it is more helpful to engage. We discuss significant holdings with external managers but mainly leave engagement to them. “We value engagement strategies that are both aligned with our stewardship goals and tailored to the manager’s specific investment approach,” says Koivu.
He finds the jury is still out on whether active or passive managers are better at engagement. “Active managers can be more active on engagement and it is easier for them to have stronger views on how to change things. But their investor base is very diverse and they may have to manage diverse expectations on how to engage. The key advantage of passive managers is that they have a lot more assets. Both active and passive managers can be very influential, but from different sources based on the strength of their initiatives,” explains Koivu.
SFDR labels
Most active funds that Veritas allocate to report under SFDR 8 and most passives under SFDR 6. There are not many under SFDR 9.
“In any case, tags and labels are not so important practically. We would rather look at what the managers are actually doing behind the framework or label,” says Koivu.
This article will feed into NordicInvestor’s upcoming special report on Sustainable Investing
