Nordea: How Finland’s Knot Was Untied
Nordea has navigated challenges posed by high cash holdings among asset managers and sees potential for growth. The bank's subsidiary in Switzerland is focusing on credit solutions, particularly European covered bonds, as alternatives to cash. With a shift towards ESG investing gaining traction among institutional investors, Nordea is diversifying its approach and establishing a team in Zurich to cater to this demand. The bank emphasizes long-term investments to withstand economic fluctuations, rather than reacting to specific events.
This year, high cash holdings posed challenges for many asset managers. Nordea, however, now sees light at the end of the tunnel. Additionally, the subsidiary of the Finnish bank has established a new foothold in Switzerland.
When client funds are shifted into cash, it’s not good for business. Countless private banks suffered from this trend last year, and asset managers like Nordea also felt the pressure. «The key question is: When do clients reach the tipping point where holding cash is no longer desirable?" asks Cristian Pappone, Nordea's Switzerland head. He answers his own question: «The low-interest environment has shown quite clearly, in my opinion, that this point is reached when low rates begin to erode cash holdings.»
The initial rate cuts have indeed triggered increased activity in other asset classes. However, the rate adjustments so far have been too modest to create widespread effects.
Strong Demand for Credit Solutions
Cristian Pappone is confident that a turning point has been reached and that the shift into cash-like investments, such as money market funds, will continue next year. These funds have seen significant inflows over the past two to three years.
At Nordea Asset Management, credit solutions are currently in high demand. The cross-credit space appears particularly promising, according to Pappone. «We also consider European covered bonds a good and relatively safe alternative to cash compared to other asset classes.»
Given the geopolitical climate, bringing stability into portfolios is advisable. Investments in covered bonds can contribute to this, says Pappone: «This asset class is an exciting complement to government bonds and investment-grade corporate bonds.»
Closer Collaboration with Institutional Investors
Nordea believes portfolios can be structured through long-term, bottom-up investments to withstand a range of economic and geopolitical scenarios. «In our view, this approach is more promising than reacting to specific events, such as the U.S. elections,» Pappone adds.
Nordea itself has also diversified. In addition to its wholesale business, the asset manager has turned its attention to institutional clients, establishing a team in Zurich in May, as reported by finews.ch.
ESG Is Gaining Traction with Pension Funds
This move is logical, as ESG—a key focus for Nordic companies—has also gained significant traction among institutional investors in Switzerland. According to various studies, a growing number of pension funds are keen to allocate a portion of their investments based on ESG criteria.
What matters most, however, is how ESG is defined, says Pappone: «ESG investing encompasses a broad spectrum—from simple exclusions to full integration into the investment process. There are many nuances in between.» Currently, much of the focus is on implementing decarbonization goals aligned with the Paris Agreement, Pappone notes.
