By Muskan Arora
Uncertainty around Trump’s tariffs has nudged European investors toward home bias, including shifts from Magnificent Seven mega-caps to defense stocks in the region.
Timo Löyttyniemi, chief executive officer of the $27.2B State Pension Fund of Finland, has divided the pension plan’s European equities portfolio into two buckets of which one is focused on investments specifically within the Nordics region, while the other is focused on all of Europe. The plan allocated 23.5% of its equities’ portfolio to the Nordics region, as of December 31.
“The first period of new geopolitics was to avoid East investments and the second leg has been a question mark about investing in Magnificent Seven,” said Löyttyniemi in an exclusive interview with Markets Group.
The Russia-Ukraine conflict has opened doors for the pension plan to start investing in defense-related stocks directly. Indeed, many industrial companies have started considering defense investments within the private equity and venture capital.
Löyttyniemi also noted that, in Europe, there are “pure play” opportunities as many of the investments will be considered ‘dual use’ — meaning these companies will also carry out business in civilian society, such as providing solutions in telecommunications, in addition to providing solutions for defense use.
The CEO anticipates opportunities in the defense sector to arise in the private credit space. “In the future banks have an opportunity to use the private credit players as integral part of their banking model, and that kind of evolution will open new avenues for private credit.”
Löyttyniemi joined the pension plan more than five years ago, after returning from European Union assignment. During his tenure, he has steadily increased allocations to its alternative sleeve, including infrastructure and private credit. In the early days of private credit, investors were more focused on distressed and crisis-related funds, he said, noting the industry eventually shifted to focus more on sponsor-related funds. He expects the next big shift to be toward evergreen funds.
