Shifting Sands: Embracing Global Assets for Future Growth
Frjálsi lífeyrissjóðurinn’s investment strategy for fiscal year 2025 continues a multi-year trend of increasing the proportion and diversification of international assets, while generally reducing the weight of domestic assets. The primary changes involve an increased allocation to foreign assets, predominantly foreign equities. Conversely, the weight of domestic bonds in the insurance department, Frjálsi 1, and Frjálsi 2 portfolios will be reduced. Additionally, the weight of foreign bonds in the insurance department and Frjálsi 1 will be decreased. For the Frjálsi Áhætta portfolio, the main changes include an increase in the weight of domestic and foreign equities, offset by a reduction in domestic specialized investments. The Frjálsi 3 portfolio, which is solely comprised of domestic bonds and deposits, will maintain its asset class proportions from the previous year, with only minor adjustments within bond categories. The rationale behind these changes is to promote higher long-term returns, acknowledging that this may lead to increased short-term volatility. Foreign assets are considered riskier than domestic bonds, indicating a slight increase in the overall risk level, though varying by investment pathway. (Source: Ársreikningur 2024, page 4)
Unlocking Value: Resolution of ÍL-sjóður Bond Dispute
Discussions regarding the settlement of ÍL-sjóður bonds have resulted in proposals publicly presented on March 10, 2025. The proposals entail settling HFF150434 and HFF150644 housing bonds at a yield premium of approximately 32 basis points above the indexed government bond yield curve. In exchange for these housing bonds, holders will receive eight new indexed government bond classes maturing between 2029 and 2050, one non-indexed government bond class maturing in 2032, four market bond classes, and cash in Euros and Icelandic Krona. Government bonds will constitute approximately 85% of the settlement portfolio, ensuring the delivery of similar assets. If approved at bondholder meetings on April 10, 2025, the settlement value of the housing bonds in Frjálsi lífeyrissjóðurinn’s portfolio will be approximately 1.7 billion ISK higher than their claim value. (Source: Ársreikningur 2024, page 5-6)
Cost Efficiency: Negotiating Favorable Management Fees
For fiscal year 2024, Frjálsi lífeyrissjóðurinn negotiated a reduction in its annual proportional management fee to Arion Bank from 0.074% to 0.068%. The total management fee for 2024 amounted to 751.9 million ISK, or 0.15% of the average net assets. Additionally, the fund paid a custody fee of 82.7 million ISK. The fund’s board aims to further reduce the proportional management fee as the fund grows. (Source: Ársreikningur 2024, page 7)
Commitment to Sustainability: Expanding Responsible Investment Practices
Frjálsi lífeyrissjóðurinn is actively implementing its responsible investment policy, which considers environmental, social, and governance (ESG) factors in its investment decisions. The fund’s asset manager has developed and integrated responsible investment practices, aligning with the UN Global Compact and UN Principles for Responsible Investment (UN PRI). In 2021, Frjálsi, along with 12 other Icelandic pension funds, signed a declaration of intent with the Climate Investment Coalition (CIC), committing to allocate a total of approximately 300 million USD (around 37 billion ISK) to investments in clean energy and environmentally friendly solutions by 2030. The fund believes that the supply of green investments will increase, meeting its return and risk requirements. The fund’s estimated CO2 emissions from its direct ownership in domestic listed companies for 2024, based on 2023 company data, were 42,779 tons, or 8.13 tons per 100 million ISK. This is an increase from 2023 (29,689 tons or 6.6 tons per 100 million ISK), primarily due to a change in Festi’s environmental accounting methodology, which accounted for a 15,781-ton increase. (Source: Ársreikningur 2024, page 59-60)
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