Why you should care

Taking care of retirement money is important for all of us.

For Reima Rytsölä, managing a 40 billion euro pension fund in Finland is a bit like waiting for the Big One — much like residents of a quake-prone Tokyo await the inevitable. They prepare, but also carry on. The Big One for Rytsölä? “How painful will be the exit from a zero interest rate environment,” he says. He knows that scary day is coming, sooner or later, and that all the investment bets he’s taken for his 335,000 pensioners could turn on what some central banker says or does somewhere. Worrying about everything, he quips, “is part of my job description.”

Since his appointment as chief investment officer a year and half ago at Finland’s largest pension provider, Varma, Rytsölä’s concerns — or perhaps not getting spooked by them — have paid off handsomely, as this relative newcomer to the art of managing big piles of money has pushed his investments up the risk curve. He’s bought more and more so-called alternative investments — things you can’t find online at Schwab or Fidelity and trade on your own — in a successful effort to juice returns. And it’s been enough to win recognition as “Scandinavia Corporate Winner” in Institutional Investor’s annual rankings.

But can the hot streak last? Rytsölä and the rest of the investing world are close to a moment of truth. U.S. stock market investors are riding the crest of a wobbly 6-year-old bull market as the Federal Reserve embarks on a course of raising interest rates, possibly as early as September. In Europe, interest rates have fallen all the way to zero and dipped below, in fact, making it hard to make money on good old-fashioned government bonds. “We have a darker environment here in Europe,” says Rytsölä. And he doesn’t mean Finland’s Nordic winter, what with Greece in a deep depression as it sucks it up to hang on to its membership in the eurozone.

Truth is, Rytsölä lives in a bleak world as he seeks to meet strict government standards for “solvency,” aimed at assuring he’ll meet promises to pensioners. “Finland is in a lot of trouble right now,” says Thaddeus Best, senior Europe analyst at BMI Research in London. The Financial Times recently declared Finland to be the “sick man of Europe,” with its economy shrinking for three years in a row. Nokia, once a leading engine of growth for Finland, saw its dominant market share for cellphones eaten by Apple and Samsung. The forest industry is in a slump. The nation’s population is aging fast, and government spending clocks in at an impossibly high 58 percent of the total economy. Rytsölä doesn’t think Europe, or Finland, should be like the U.S., but adds, “The public sector has grown too big.”

All of which makes it all the more important that Rytsölä deliver returns to meet the promised payouts. So far, he’s ahead of the game, says Reijo Vanne, director of analysis at the Finnish Pension Alliance. But, he warns, if Finland’s low growth rate continues for another five years, Finland will either have to raise employee contributions or “somehow cut the pension benefits.”

Markets have the tendency to overshoot in every direction. This time won’t be different.

 

Rytsölä looks, well, like a Finn, with a round face and dirty blond hair, youthful at 46. And he talks like one too — fluent in English with a kind of raspy monotone that betrays his native tongue. He arrived at Varma after a 20-year career as a banker at Finland’s Pohjola Bank, where he worked with his current boss — but in sales, not money management. “Perhaps I had at least some kind of reputation in the markets,” he says, by way of explanation. Still, it didn’t take him long to apply a confident touch and shake things up at Varma, splitting his staff in two so that he could focus more brainpower on unlisted investments. That’s the sexy stuff you can’t buy on regular exchanges but that might promise outsize or less risky returns. So far so good.

Rytsölä takes a “macro” approach to investment — making calls on the direction of the economy and then figuring out the best place, anywhere in the world, to put Varma’s money. That could mean fewer bonds or more stocks, with more from the U.S. and less in Europe, for example. A shift to the U.S. stock market has helped. Rytsölä’s results last year — at 7.1 percent — are strong in a European environment, and 10 percent higher than the average of his biggest Finnish peers. And those alternative investments did well: Unlisted stocks returned nearly 20 percent. Rytsölä also pushed more money into hedge funds, not necessarily the high-risk variety — they were less volatile than the stock market. “You can always see the mistakes in hindsight,” he says, wishing he’d put more money into long-duration bonds and high-risk investments in Italy, Spain and Portugal. Oh, well.

Rytsölä grew up to the east of Helsinki in the industrial and port city of Kotka, a transshipment point to Russia for timber, paper, metal and stone. His parents — a veterinarian and a government bureaucrat — still live there, though his brother and sister have moved away. He takes time off with his wife and two children, and plays tennis and golf, but his job doesn’t allow for a real break from markets. “You learn to live with it,” he says. Which leaves Rytsölä with plenty to worry about all the time. “Markets have the tendency to overshoot in every direction,” he says. “This time won’t be different.”

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