Portfolio 1/2010

Portfolio Aberdeen’s magazine for Nordic investment professionals 1 • 2010

16|

In turbulent times long-term investment goals are advisable Kevin Bull Dalby, DnB NOR Asset Management

New Global Head of Property Andrew Smith: Striving for quality across all activities | 8 In the Spotlight: What makes quality research | 10 Michael Nielsen from ATP meets Aberdeen at the Club | 20

Text Kaisa Alapartanen Photo Aberdeen

Keeping your eye on the ball*

G

olf requires total concentration and no matter how hard the situation, a player must stay focused and keep to his strategy. At Aberdeen, we apply the same approach to investing. Our active management style requires keeping our finger on the pulse. We aim to offer our clients the best local knowledge, combined with a strong global presence and no matter how tricky the putt or rough the course, our players will make the shot.

2 Aberdeen Perspective

Aberdeen Asset Management is proud to sponsor one of the world’s most experienced and respected golfers, Colin Montgomerie. We trust that inspired by his successes on the golf course, our own teams will achieve their professional goals for the benefit of our clients. In October 2010, Colin Montgomerie will captain the European Ryder Cup team as they take in the United States at Celtic Manor in Wales. ▲

*

“Keeping your eye on the ball” > to watch or follow the ball carefully. > to remain alert to the events occurring around oneself.

McGraw-Hill Dictionary of American Idioms and Phrasal Verbs. © 2002 by The McGraw-Hill Companies, Inc.

>to give your complete attention to what you are doing, or want to achieve.

Cambridge Dictionary of American Idioms Copyright © Cambridge University Press 2006.

Aberdeen 3 Montgomerie’s appearances in the Ryder Cup: 1991, 1993, 1995 (winners), 1997 (winners), 1999, 2002 (winners), 2004 (winners), 2006 (winners), 2010 (Captain)

hip

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Portfolio

1/2010

Perspective 2 4 Contents Editorial 5

6 Andrew Smith On a personal note

8

10 Out of Office The green-fingered statistician

In Brief

In the Spotlight Research that delivers

14

16

Forum Turbulent times continue

19 News

4 Aberdeen Contents

At the Club Back to normal?

20

Portfolio is Aberdeen’s magazine for Nordic investment professionals. • Next issue will be published in Autumn 2010. • Send us feedback and ideas aberdeen.helsinki@aberdeen-asset.com • Editor-in-chief: Hanna Duncker, Lena Ellertson hanna.duncker@aberdeen-asset.com, lena.ellertson@aberdeen-asset.com • Editorial office and layout: Otavamedia Oy/ Viestintätoimisto Sanakunta • Addresses: Aberdeen’s register • Orders and change of Address: aberdeen.helsinki@aberdeen-asset.com • Printed by: Newprint Oy • Cover photo: Kent Krogh and Olav HeggØ.

Aberdeen Editorial 5

Dear Reader

Y

ou are holding the first edition in English of our Nordic investors´ magazine, Portfolio.

Previously we had different local language editions in some Nordic countries but given that so many themes and trends are common across the region, we wanted to present you with a Nordic magazine.

In this issue, we focus on research and its usefulness from our point of view, but also from the investor’s perspective. We at Aberdeen are strong believers in research. Our whole business model is based on active research, market analysis, and a strong local presence in countries in which we invest. We have the same approach across all the asset classes we manage: in equities, fixed income and property.

A concrete example on this is Our whole business model is based on Lars Flåøyen’s positive outlook on active research, market analysis, and a the Nordic market on page 6.

“

strong local presence in countries invest.”

We are currently in the process in which we of unifying the property team with other asset teams in the group. To clients and contacts in the market, the most visible sign of this integration will be the more consistent use of Aberdeen Asset Management name as the lead brand across the Aberdeen organisation, but it will also result in a stronger business model. We have also changed management structures to be in line with the wider group, and are pleased to introduce our new Global Head of Property, Andrew Smith, in this first edition.

I want to thank Michael Nielsen from ATP, Christina Gustafsson from IPD and Kevin Bull Dalby from DnB NOR Asset Management for sharing not only their professional views but also, in the case of Christina, letting us have a look at her life outside office hours.

I hope you will find this interesting reading and would welcome your feedback.

Tonny Nielsen Head of Direct Property, Nordic region and Eastern Europe Aberdeen Asset Management

For Professional Use - Important information The content of this document, including any expression of opinion or forecast, has been obtained from or is based on sources believed to be reliable. The content may include projections or other forward looking statements regarding future events or future financial performance of countries and markets actual events or results may differ materially. No guaranteed is given as to the accuracy, adequacy or completeness of the content of this document and no responsibility is accepted for any loss arising from use of this document.

For the purposes of the Markets in Financial Instruments Directive the content of this document is not investment research or non-independent research.

This document is published by Aberdeen Property Investors Finland Oy, Mikonkatu 9, FI-00100 Helsinki, Finland. Business-ID 1604474-5 © 2010 Aberdeen Asset Management all rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without the prior written permisson of Aberdeen Asset Management.

Text Nina Garlo, Kaisa Alapartanen Photo Arto Wiikari. Aberdeen

Nordic property markets improve

The Nordic property market is continuing to improve as investors’ appetite for property investments returns, thanks to low interest rates and a more stable economic outlook, notes Lars Flåøyen, Head of Nordic Property Research and Strategy at Aberdeen Asset Management.

A

ccording to Flåøyen, the global economy turned a corner last autumn after enduring grim performance in late 2008 and early 2009, with economic expansion now showing surprising strength and growth levels above the historic trend. The main drivers behind such development have been a very loose economic policy combined with strong growth in Asia.

European markets and the U.S. have also profited from the substantial improvement in financial conditions.

When examining the Nordic countries, they too are benefiting from a brighter economic outlook and improving fundamentals.

“

We expect the Nordic economies to feel the benefits of their strong fundamentals going forward.”

“The Nordic countries suffered badly during the global financial crisis when global trade almost came to a halt. However, we expect the Nordic economies to feel the benefits of their strong fundamentals going forward, and to show higher economic growth than the eurozone average in coming years,” says Flåøyen.

Uncertain Nordic rental markets Investment activity in all Nordic countries is increasing and property values have stabilised and in some instances even started to increase in countries such as Norway. Prime properties and those with long leases are the main beneficiaries of the improved market conditions, while those properties with short leases, vacancy risks or a poor location have attracted little attention from investors.

As a whole the sector is looking more attractive relative to, for instance, the yield on cash which is at historically low levels, or even the equity market, which is still perceived as carrying too much risk by many investors.

6 Aberdeen In Brief

Flåøyen expects investment activity in the Nordics to continue to increase in the coming months and quarters, but says that there are still challenges to overcome in rental markets – especially in secondary locations with low demand and in markets where vacancy rates have increased sharply.

He concludes, “Currently, the Nordic property market is a very attractive place for investment. The global economy is in the early stages of recovery, liquidity in property markets is picking up and prime yields have reached or exceecded their highest levels in the cycle. Prime yields are expected to fall in 2010, although the property market recovery will not be equal across markets, sectors and assets. Challenges in letting markets are expected to persist and we don’t expect any broad upswing in rents until later in the cycle.” 

Aberdeen 7

Aberdeen raising its voice in the US Aberdeen Asset Management has increased its commitment to building it´s presence in the United States. Currently, the US business accounts for roughly 10 percent of total assets under management. The aim is to triple this percentage over the next three years.

Historically, Aberdeen has been more institutionally focused in the US, but going forward there is now a real focus on targeting the wholesale market as well. In time, they anticipate property will also be an area we´re to expand as well.

In order to improve awareness of the Aberdeen brand in the new markets, Aberdeen has launched a series of advertising campaigns and selective sponsorships. As such, Aberdeen has entered into a four year agreement to sponsor the biggest inter-collegiate rowing event in the country, the Dad Vail Regatta.

The Dad Vail is held in Aberdeen’s U.S hometown of Philadelphia and is the main event on the intercollegiate rowing calendar with some 120 university and colleges and 3,500 rowers across the United States and Canada competing. The 2010 Regatta gathered over 30,000 spectators on the banks of the Schuylkill River.  For more information about the event, please visit: www.dadvail.org/

Thousands of student athletes gathered to compete in the Dad Vail regatta on the second Saturday in May.

Taking property investment to the next decade Since being established in 1983, Aberdeen Asset Management has grown enormously from being a small yet ambitious Scottish-based fund manager to a truly global operator. Today the company employs over 1,800 staff across 31 offices in 24 countries, and manages over €191.6 billion of assets in equities, fixed income and property.

D

uring Aberdeen’s 27-year history, investment trends and markets have changed significantly. Most noticeable differences can be seen in the field of property investment.

With current Head of Property Rickard Backlund stepping down from full-time executive responsibility by his 60th birthday in September, company management is set to change, with Andrew Smith taking the helm and guiding the company towards the next decade.

The future Group Head of Property is looking ahead with optimism and motivation.

“Our goal as an investment manager is to satisfy clients’ property investment needs whether they are looking for bespoke portfolios, pooled funds or funds of funds. In doing so, we must strive to offer consistent, strong performance and high standards of client service,” Smith outlines.

At Aberdeen, such development is being supported by bringing its specialist property division – Aberdeen Property Investors – closer to other asset classes in terms of structure and process. To clients and contacts in the market, the most visible sign of this integration will be the more consistent use of the Aberdeen Asset Management name as the lead brand across the Aberdeen organisation but it will also result in a more harmonised business model towards clients.

Nordic Region The changes will also impact the Nordic region with several people taking on new responsibilities.

Pertti Vanhanen, currently Head of the Nordic region and Eastern Europe for property has been appointed Head of Direct Property, Europe, with oversight of all direct property funds and asset management in Europe.

Tonny Nielsen, currently head of the Danish property business and fund manager for the Danish fund will take on the Nordic responsibility as Head of Direct Property, Nordic region and Eastern Europe.

In Finland Ari Anttonen becomes Head of Property Investment Management, Finland. Anttonen is currently Head of Fund Management, Finland..

In addition to their new duties, Nielsen and Anttonen will also both keep their current responsibilities. 

>Read more on Andrew Smith on the following page

Text Nina Garlo Photo Ilpo Musto

On a personal note Aberdeen’s new Global Head of Property shares his vision on what the future holds. In the Smith domain, global challenges are met by a local presence, regorous active management and innovative approach to property.

“W

hile we have ambitious targets for organic growth, we will be striving for quality across the range of our activities. We should strive to be the best, not just the biggest!” Andrew Smith starts off.

Today Aberdeen is a top three European property fund manager, with some €26 billion of property assets under management primarily in Europe, Asia and North America.

Smith is keen to build on Aberdeen’s business model of offering international (and increasingly global) property investment solutions with strong local teams.

“We will be looking to plug gaps in our product line-up and geographical coverage, but will continue to focus on lower risk portfolios – an approach that has also helped to maintain the stability of the business through the downturn,” he says.

Making the most out of a niche market When talking about the industry outlook, Smith sees property investment always being a niche investment activity for most institutional investors, as the market cannot offer the scale or liquidity often available from equity or fixed income markets.

8 Aberdeen On a Personal Note

“Property has to compete for its place in the multi-asset portfolio, and will not be suitable for all. Nevertheless, it has particular characteristics that justifies its consideration in the investment spectrum: a market cycle that often

differs from other investment markets, a mix of equity and bond characteristics, and the ability to add value after purchase through active management initiatives.”

The increasing range of property options, and improvements in market transparency have been essential to maintain its appeal, and the availability of indirect investment opportunities through pooled funds and multimanager solutions means that even small investors can get exposure to well-diversified portfolios.

“Property will remain an attractive holding for many investors, but the industry will need to continue to innovate, and to build on the progress made in recent years,” Smith underlines.

Travelling man Andrew Smith already has an extensive career in the property business. Educated at the University of Birmingham, his career in the property business began in 1986 working for the property investment department at UK-based life insurance company Pearl Assurance.

Smith joined Aberdeen in 2002 as Head of Investment Strategy, responsible for developing Aberdeen’s property investment process and strategy across the company’s international range of client portfolios and funds. Part of the business was sold in 2004 and subsequently acquired by Goodman, the

Australian property fund manager, where he became Deputy Managing Director of Goodman Property Investors until the business was re-acquired by Aberdeen in mid-2008. On re-joining Aberdeen Smith then became CIO and Head of Fund Management.

Smith’s career history at Aberdeen and elsewhere has given him exposure to a broad spectrum of markets worldwide, under different conditions from boom to bust.

“I have had involvement in both direct property investment activity and fund of funds activities, and have had the opportunity to meet investors with wide-ranging requirements and different investment styles,” he describes.

Smith has always enjoyed travelling to new places, which is undoubtedly an advantage in his job. “As I visit towns and cities for work, in leisure time I’m more likely to opt for wild places and climbing mountains – from Scottish islands to the Australian outback.”

“I am married with four children. Much to our surprise, our third child turned out to be identical twins.”

Smith met his wife through musical activities at university, and continues to play the clarinet.

“Our children are all active musicians, so together we can form a small band!” 

Aberdeen 9

“

Property will remain an attractive holding for many investors, but the industry will need to continue to innovate, and to build on the progress made in recent years.�

Research

that delivers Local knowledge plays a critical role in formulating quality property research.

Combining this with global understanding gives the complete picture.

10 Aberdeen In the Spotlight

Text Satu Jussila Illustration Päivi RostrÜm Photos Shutterstock, Aliisa Piirla

Aberdeen 11

W

hen it comes to real property markets, there is no ticker tape you can check at a moment’s notice to see the market price. So, figuring when to buy and when to sell – and at what price – is all the more interesting. No more so than in a down market, when transactions are relatively infrequent.

rates. Generic research undertaken remotely simply doesn’t capture these ‘on the ground’ murmurings. When one tenant quietly negotiates to have the rent lowered, you can discount this as an isolated event, but when ten tenants ask the same, the nascent bloom of a larger downturn may loom.

Accurate forecasting Aberdeen researchers have developed a way to make the untransparent nature of the Nordic property markets work to their advantage.

“One of our strengths comes from our ability to internally accumulate local data,” shares Alessandro Bronda, who heads Aberdeen’s global property investment strategy from Brussels.

Through the company’s direct property holdings in the Nordic markets, researchers mine a whole host of golden nuggets such as the early whispers of a potential tenant default or pressures on rental values and vacancy

“

Aberdeen’s property research team consists of 18 people, which include dedicated staff at each of the Nordic capitals. An important aspect of their approach is to combine the top down and bottom up perspective.

Researchers apply international macroeconomic models, while also using the city and country specific input from local team members.

“As property is under-researched and less understood among the major asset classes,” notes Milan Khatri, Aberdeen’s chief property economist, working from London, “there are opportunities to have different views than the rest of the industry.”

The goal of our research is to support the fund managers in making the best possible investment decisions.”

In late 2006 Aberdeen advised clients not to invest into Spain which proved to be a wise decision. At the moment, the research team has a more favourable view on Sweden than other research houses.

“Our analysis of local data indicates that the market is coming through the down cycle earlier than expected,” says Khatri. If this analysis is correct, look for Swedish fund investors to be the ultimate beneficiaries.

Strict unbiased reporting External company research is often affected by various forms of bias while Aberdeen’s on the ground ‘proprietary research remains objective. Research is not a marketing tool.

“We do not provide property research as a separate product,” says André C. D. Schiøtt, an investment performance analyst who works for property investment and research strategy in Copenhagen.

“The only thing we do is asset management.

The goal of our research is to support the fund managers in making the best possible investment decisions, given the economic environment.”

This sentiment is echoed by Schiøtt’s colleague in Brussels. “We have a very good track record in predicting the performance of various property markets in Asia and Europe, thanks to the extensive resources we have in terms of data and people we devote to forecasting,” says Bronda.

“Our track record is especially good in terms of accurately predicting the relative performance between countries and sectors. The forecasts are used in supporting our funds and segregated accounts.” 

Beyond the known Getting behind what makes for quality research is not an easy question, feels Petteri Joensuu, an investment manager at Suomi Mutual Life Assurance Company, in Helsinki.

“T

here’s a bunch of companies producing research and, in some respects, the quality is good,” he says. “But you have to define what this means.”

Suomi Mutual administers insurance policies for around 250,000 customers and has an investment management portfolio of €6.4 billion. Indirect property investments total around €300 million, while direct property investments are approximately €350 million – both of which are Joensuu’s responsibility areas, in addition to listed equity, private equity and foreign exchange.

Seeing the future “All actors are good at the data mining side that is found from freely distributable statistics, but the difference is that some actors have more proprietary data.” And this is where the real differentiation is found.

Joensuu says that Aberdeen’s strength comes from its ability to access its global network to see how sensitive markets, such as London city and Hong Kong, are performing – and combine this with local knowledge to formulate the big picture.

“

I could not imagine working with a fund manager that lives far away from the properties under his or her management.”

“Aberdeen is good at defining at what stage in the cycle we stand.

They make good calls on how the markets will develop in the short and medium-term. While it is interesting to see where the economy is now, what I need most is a view to the future.”

Sell today, buy tomorrow Joensuu has worked in the investment industry for around 15 years, handling all kinds of asset classes. He says that the major part of his work involves investigating facts, but sometimes gut instinct plays its part.

“Living in the area that you are analysing as a property investor is far more useful than in other asset classes,” he says.

12 Aberdeen In the Spotlight

Local presence also brings an in-depth understanding of the bricks and mortar. “Given the smallish nature of the Finnish market, it is not uncommon for an actor to sell a property today only to buy it back in ten years. I could not imagine working with a fund manager that lives far away from the properties under his or her management,” Joensuu concludes. 

Aberdeen 13

Nordic market breakdown Researchers at Aberdeen forecast the Nordics will produce slightly better returns than Europe as a whole over the coming five years.

Norway receives the most favourable rank in the medium-term.

Finland

Finland

Eurozone membership provides stability to exports and keeps interest rates low. Finland has low levels of private and public sector debt and runs a current account surplus.

High exposure to paper and timber industries, which are volatile. The country has a high level of structural unemployment. The demographics are poor.

Sweden

Sweden

Low levels of public/private debt and a current account surplus. Sweden is the largest economy in the region and, as such, attracts relatively more investment.

Banking exposure to volatile economies of the Baltics.

Denmark

Denmark

Low public debt levels, highly flexible labour market. The currency is tied to the euro with credible commitment that keeps interest rates low. Mortgage debt is long-term at 20–30 years.

Weak demographics. High private debt sector levels.

Norway

Norway

Good demographics and very strong public finances.

Welfare spending is very high, and the economy is too dependent on oil. Private sector debt levels are high.

Iceland

Iceland

Excellent geothermal and hydropower sources have attracted foreign investment for the aluminium sector and can potentially provide support to the economy.

Very high external debt due to the financial crisis.

Iceland is not a member of the EU/euro, which has led to high interest rates. It is over-exposed to the fishing industry.

In a word, what makes for quality research?

Independence

Credibility

Objectivity

Alessandro Bronda

Milan Khatri

André C.D. Schiøtt

14 Aberdeen Out of Office

Text Kaisa Alapartanen Photo Peter Nordahl

Aberdeen 15

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Christina Gusta

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The green-fingered statistician Christina Gustafsson is the Managing Director of IPD Norden which creates indices and analysis services for property investors in Sweden, Norway and Denmark. Gustafsson has a degree in Real Estate Economics from the Royal Institute of Technology in Stockholm. In her spare time the former farmer’s daughter attends to her green house and garden at home.

C

hristina Gustafsson started growing vegetables as a young girl. By the age of twelve she had a contract for local producers at the island of Gotland where she grew up.

“But that is the last time that I did this for profit.

Since I was sixteen I have grown vegetables only for pleasure,” Gustafsson says.

For the last four years Gustafsson has had her own green house at her summer cottage, 70 kilometres away from Stockholm. During the winter the green house collapsed and has had to be rebuilt from scratch.

Improved quality of life

require regular attention during the cultivation season.

Gustafsson’s family is included in the labour.

“My husband helps a lot, especially after the vegetables have been harvested. He is the chef.”

Gustafsson main crops include tomatoes, chillies and cucumber.

“I can feed my family with fresh good tasting tomatoes from July to November,” Gustafsson rejoices.

Christina Gustafsson is an experienced economist, but is her education of any use with the plants?

“If I calculated the time and money I invest in gardening and my green house… well, it would not make sense.

However the quality of life benefits are worth much more than the vegetables though,” she concludes. 

Gardening involves a lot of physical work - moving soil, planting seeds and so forth. Also, the plants

gs Three thint I canno t u live witho

1.

MOBILE PHONE. We have no office phones, so it would be very complicated to even work without it.

2.

BICYCLE. Stockholm is such a good cycling city. I cycle six kilometres to work everyday from home to our office in downtown Stockholm.

3.

NEIGHBOURS. They take care of my garden and green house when I am away. Gardening might not seem like a social hobby to the outsider, but it actually is. We meet up with friends to exchange plants.

Text Matti Remes Photos Olav HeggØ

Turbulent times continue Temporary financial turbulence may continue, but the longer term cyclical upturn in the world economy seems promising. The current market situation only serves to emphasise the significance of long-term planning in the investment industry, says Chief Analyst Kevin Bull Dalby in DnB NOR Asset Management.

A

ccording to Dalby, the investment industry currently faces exceptional times. Although the world economy is showing strong signs of recovery there is still significant turbulence being caused sudden fluctuations in the financial market.

A prime example is the financial crisis in Greece that shook the stock and interest rate markets in May. Stocks plummeted in European markets on account of the financial insecurity affecting the entire eurozone. However, a few days later stocks shot back up as the EU countries settled on an aid package of 750 billion euros to help the countries in crisis recover.

16 Aberdeen Forum

“Temporary volatility in the financial markets is also expected to continue in the future,” Dalby explains.

impact of these fluctuations stabilise in the long run.

“Long-term investment goals are advisable. In addition, greater account should be taken of risk management skills,” Dalby suggests.

DnB NOR Asset Management is affiliated with DnB NOR, the largest financial services group in Norway.

Kevin Bull Dalby manage investments in both Nordic and international funds within the Multi Manager Investment division. Investment targets include, for example, funds controlled by Aberdeen Asset Management.

DnB NOR Asset Management’s staff includes more than 220 financial services experts in Norway, Sweden, Luxembourg, Hong Kong and India.

Long-term investments advisable

China powering the world economy

Investors should try and keep their cool when reading the economic news bearing in mind the extreme events that occurred during the global financial crises. Temporary and occasionally strong fluctuations in the stock market come with the territory in the investment business, but the

The intensity and prolonged increase in share prices that began in March of last year came as a surprise to many investors. For example, the energy industry, basic raw materials,

Aberdeen 17 technology, as well as the financial sector affected by the financial crisis – all began to recover.

Companies that have profited from various large infrastructure projects in China, India and other developing economies have been particularly strong drivers of the financial markets.

Although positive development can be seen in both stock markets and consumer confidence, the industrial countries are still likely to face a relatively slow phase of economic growth. “Increases in share prices similar to last year are highly unlikely in the near future.

Significantly more moderate stock market returns are anticipated this year.

However, making predictions is particularly challenging these days,� Dalby adds.

Dalby points out that macroeconomic imbalances may cast a shadow on the economies of several countries for years to come. The most significant imbalance is due to public and private sector debts.

DnB NOR Asset Management is affiliated with DnB NOR, the largest financial services group in Norway.

Kevin Bull Dalby manages investments in both Nordic and international funds within the Multi Manager Investment division. Investment targets include, for example, funds controlled by Aberdeen Asset Management.

Dalby believes that economic recovery will be particularly slow “in countries that have been living beyond their means for a long time.”

The financial crisis will probably also impact on the revenue of companies that mainly operate in the markets of countries experiencing financial difficulties. To stabilise their

“

“This particularly applies to governments in financial crisis.”

On the other hand, companies in countries experiencing slow economic growth can benefit from the shift in the world economy’s

Political decision-making is having a greater impact on the financial market than before.”

economies, governments will have to increase taxes and reduce spending, which will in turn reduce people’s consumption capacity and overall demand for products.

Focus shifting to developing economies According to Dalby, among the most significant consequences of the financial crisis are worldwide changes in consumption and saving patterns.

The developing financial markets live in hope that consumption will continue to increase at the same time as several industrialised countries are

18 Aberdeen Forum

preparing to tighten their belts more than ever.

focus. For instance, European companies specialising in exports may benefit from the current economic growth and infrastructure projects in China and other developing economies.

The losers in such a situation include many companies operating in the markets of debt-stricken countries.

Balancing the public finances requires tax increases, which will in turn impact on consumption.

“Companies providing luxury products or services may face

problems. On the other hand, in sectors such as health care, steady development may continue,” he says.

The operating conditions for companies in various regions may remain sufficiently favourable, even if investors are fearful of the breakup of the eurozone. Careful assessment of investment targets will be crucial in the future.

“Some companies always do well, even in a crisis. I recommend identifying lucrative companies that are not saddled by debts, that manufacture products which are in demand and whose share prices have growth potential,” proposes Dalby.

In addition, strong export company shares may prove to be interesting investment targets in turbulent times.

Financial crisis revolutionises the markets Dalby points out that the financial crisis is causing profound changes in many sectors. The greatest impact is already visible in investment banks and other business areas within the finance sector.

“Moreover, all sectors and companies whose operations depend on significant amounts of credit become vulnerable when restructured financing runs into complications. In general, the arrangement of financing has become a more important element in business,” he explains.

The EU aid package should eventually succeed in stabilising the markets.

However, there remains a concern that a similar crisis will hit the eurozone again, if Greece and other crisis-stricken countries do not take the necessary steps to repair their broken economies.

In Dalby’s opinion, now is the time to closely monitor all political changes in corporate environments. Right now, intimidated by the financial crisis, political decision-makers are seeking to impose new standards on the finance sector, tighten regulations and increase monitoring, in order to avoid a new crisis.

Dalby concludes: “political decision-making is having a greater impact on the financial market than before.” 

In the heart of Stockholm Design District The old headquarters of the Swedish Tobacco Monopol, Tobaksmonopolet, in Stockholm was built in the early 1900s and was designed by Swedish neo-classical architect Ivar Tengbom.

When the building was acquired in 2007 by Aberdeen’s Pan Nordic team, it was already evident that it had a lot of potential. Now, a few years on, this former trading estate has been transformed into a popular meeting place for interior designers as well as traditional long-term office tenants.

The work to transform the old industrial building into a functional and desirable office space is still ongoing, but already many of the spaces have been let. The property lies in the heart of Stockholm’s design district in Södermalm. The concept of showrooms around a light and open inner court has risen so much interest that the plan is to establish showrooms on the first floor as well. 

Aberdeen has appointed Pia Michelsson Head of Business Development, Finland to strengthen further its business in the country. Pia has more than 25 years of experience of working in asset management and especially with institutional clients in Finland.

This appointment coincides with Aberdeen celebrating its 10 year anniversary in Finland and bringing its property business closer to other asset classes in terms of structure and process. 

Aberdeen investor breakfast seminars Over the past year or so, Aberdeen has arranged several educational breakfast seminars for investors covering all three core asset classes, Equity, Fixed Income and Property across the Nordic region.

From the cover:

Aberdeen acquires prime retail property in Copenhagen Aberdeen has acquired a high street prime retail property at the main pedestrian street in Copenhagen, on behalf of Aberdeen Property Nordic Fund I SICAV-FIS, which invests in Nordic commercial properties, for mainly German institutional investors.

The property’s lettable area of 3,300 square metres is primarily let to fashion chain Gina Tricot.

Aberdeen expects to increase the value of the property, situated in one of the most attractive retail locations in Copenhagen, through active management and optimisation of the operation of the property. 

The latest breakfasts covered Emerging Market Debt featuring Arnab Das, Head of Strategy at Roubini Global and Kevin Daly, a Portfolio Manager on Aberdeen’s Emerging Market Debt Team.

Arnab’s view was that emerging markets are where the economic growth is and will continue to be in the coming years. Kevin focused more on growth and opportunities in the EMD asset class.

Kristina Najjar, Head of Business Development, Nordic region, commented. “Feedback from clients has been very positive. The seminars serve as an opportunity for clients to be updated on different asset classes and markets relevant to their particular area of interest.” 

Aberdeen News 19

Reinforcing the Nordic team in Finland

Michael Nielsen is the managing director and partner at ATP Real Estate. ATP Real Estate is a part of ATP, the Danish Labour Market Supplementary Pension Scheme. ATP has more than 4.5 million beneficiaries. With approximately â‚Ź50 billion in investment assets, ATP is one of the largest pension funds in Europe.

Back to normal?

Cautious optimism is a phrase often heard these days, but whether global economies have truly entered a recovery phase remains uncertain.

An analysis of real estate fundamentals shows mixed results and a potential for more volatility.

Text Satu Jussila Photos Kent Krogh, Matti Snellman

20 Aberdeen At the Club

The telephone conversation between Helsinki and Copenhagen took place on 16 April.

Aberdeen 21 Pertti Vanhanen, Head of Direct Property Investment, Europe.

M

ichael Nielsen from Denmark’s ATP Real Estate and Aberdeen’s Pertti Vanhanen ponder where property markets in the Nordics are today, and where they might be heading. Most likely no dramatic comebacks are in store, which is positive.

The Nordics, at least so far, seem to have avoided extreme fluctuations.

Pertti Vanhanen: Overall, has the recovery come quicker than expected and do you think it has long-term staying power?

Michael Nielsen: I am not sure we have seen a sustainable recovery yet, so, at the moment, the question is whether we have reached real rock bottom. We still see many markets where rents remain under pressure, as well as an increasing vacancy in many European markets, apart from London City. The dramatic shift in demand concerns me, and I believe there is a risk for a double dip in many markets.

PV: Talking to colleagues in London, jobs are increasing, and headhunters are actively looking for qualified candidates. So, there are many positive developments on that front.

MN: Yes, that is correct. And let’s hope to see this trend spread to other countries, as well.

Vacancy has a better chance of recovery than

in other negative cycles due to the fact that only very few new developments have been implemented during the last one to two years.

This will have a positive effect on the take-up in the existing buildings.

PV: Yes, this is true. Construction companies in the Nordics reacted rapidly to the downturn thus I expect it will take some two to three years to put new developments in line.

MN: Finland, Sweden and Denmark were affected by the crisis, but we have not seen a dramatic change in values. London, by comparison, had a 40 percent fall in values and the United States has decreased 30–35 percent, so far. The Danish market is not as efficient and transparent as the UK market and, as such, it cannot be considered a safe haven.

PV: Have you changed your investment strategy as a result of the financial crisis?

MN: Our long-term strategy has not changed, but as to our near future allocation – how, where and with whom – we are definitely considering closely what to do. We have increased focus on core products offering lower risk, stable cash flows and lower gearing, which has an impact on returns and lessens the potential for breaching bank covenants. Due diligence of management skills is vital, and we are looking for better alignment between managers and investors.

PV: I have heard of instances where fund managers with questionable experience came in during the heated days only to ‘return the keys’ to investors, so to speak, when the bottom fell out.

MN: That is why we look for long-term relationships. We see no need to withhold information from investors. It’s our money, fundamentally and consequently, we require total transparency. But, of course, we do not want to interfere with daily business management.

PV: ATP is a large investor and able to diversify between continents. How do you see US commercial property markets? Furthermore, do you expect Paris and larger German cities to follow London’s recovery?

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Many international investors regard the Nordics as less risky, so there may be an increase in allocations to this region.”

MN: Investments in the United States are going through a challenging phase. US labour markets are under pressure, and apparently many US banks have problems with their lending to the real estate industry. The United Kingdom is recovering strongly, whereas France and Germany are not so volatile, which means their recoveries are not as extreme.

PV: What are your expectations for 2010 for the Nordics?

MN: We anticipate an increase in transaction volumes. Many international investors regard the Nordics as less risky, so there may be an increase in allocations to this region. We are focusing particularly on Sweden and Finland – and continue our direct investments in Denmark.

PV: There is talk about distressed owners and banks, but nobody is yet reacting on that. Are we in a stage of calm before the storm?

MN: You may wonder whether low interest rates on real estate financing are keeping some banks alive. I think we must distinguish between the types of loans provided. There are non-cash producing investments and income-producing investments,

22 Aberdeen At the Club

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Michael Nielsen

which will survive as long as parties have cash flows to pay mortgages. Potentially, there is an increasing need to restructure debt and concerns who can take over development projects if they are frozen.

I think it will take a long time before all real estate related problems in the banking industry have been resolved.

PV: INREV, the European Association for Investors in Non-listed Real Estate Vehicles, has created guidelines to harmonise financial reporting standards for non-listed property funds. You have been supporting the development of INREV very strongly, and it has come very much as a market standard. Are you satisfied with current developments in INREV? MN: Yes, very much so. When INREV was established in 2003, no one thought we would come this far so quickly. What we need now is for managers and investors to take a more active role in using the standards and all other services provided by INREV. PV: We are using INREV reporting standards and can see how it makes comparisons easier. Apples should be apples, not pears!

Construction companies in the Nordics took a rapid reaction to the downturn.

It will take some two to three years to put new developments in line.”

Pertti Vanhanen

MN: Can you imagine reading through 30 different quarterly reports and trying to compare ‘net asset value’ when managers use different definitions? We are asking managers to use INREV standards as much as possible.

PV: When will interest rates increase from their abnormal lows in the Nordics, and might we see inflation in the future?

MN: As long as uncertainty remains about GDP growth and the general economy, I think interest rates will stay low and gradually increase over time.

I hope to see the Nordics return to more normal levels of two to three per cent inflation, but if something happens with oil prices, for example, everything could change – for the whole Nordic region, except Norway.

PV: I have to ask. What is your personal favourite investment?

MN: This is a tricky question. I will say funds where we meet target returns – or hopefully better. 

Many financial institutions have to balance different interests.

But at Aberdeen, we just do asset management.

At Aberdeen, asset management is all we do. Whereas many other asset managers are part of investment banking or life assurance groups, we have the freedom to focus on asset management alone.

Do remember the value of investments can go down as well as up and investors may not get back what they originally invested. Past performance is not a guide to future performance.

We believe this allows our investment teams to work at what they do best, across the world, rather than being distracted by a myriad of conflicting business interests.

For more information on why Aberdeen’s investment approach stacks up, contact Kristina Najjar,Head of Business Development, Nordic region on +468 412 8000 or visit aberdeen-asset.com.

In fact, it’s our single-minded approach to asset management, and our dedicated investment processes, that have helped us to become one of Europe’s leading independent asset managers.

Asset management. Nothing else. That’s us.

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Aberdeen 23

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