Investing with an Eye to the Upside and Downside
Cecilia Blomquist, CIO of PP Pension Tjänstepensionsförening (Occupational Pension Association) in Sweden, pays as much attention to positivity in leadership as she does to the downside in investment management. PP Pension, a $2.5 billion occupational fund for the media industry, covers the Swedish Journalists' Association, the Media Industries Employers Association, and the trade union “Unionen,” for private employed with collective agreement within the media industry, has a defined benefit scheme, a defined contribution scheme, and 35 different funds in a DC fund insurance platform.
From its base in Stockholm, Sweden – which has never experienced a lockdown amid the Covid-19 pandemic – PP Pension continues to offer a message of perspective and positivity, as Blomquist tells Hightree Advisors' Principal and Senior Advisor Lisa Laird via Zoom.
Left to right: Cecilia Blomquist, CIO, PP Pension Tjänstepensionsförening; Lisa Laird, Principal and Senior Advisor, Hightree Advisors
LAIRD: Let’s start with the organization and talk about what types of asset pools you oversee.
BLOMQUIST: We are invested in equities, fixed income, real estate; some alternative investments, as well. Our portfolio is very diversified, which has been a successful strategy. The different asset classes have about one third each of the total portfolio. Quite often, the portfolio outcome for pension funds is very dependent on the equity market, so having three different boxes with equities, fixed income, and real estate and other alternatives (adding up to one third each) creates a portfolio less dependent on the equity market.
Our size gives us flexibility to make big shifts in the portfolio when we think that is appropriate, but most of the time we try to stay with the one-third portfolio philosophy. An example of one extreme shift was during 2009, when we increased our equity portfolio from 18% to 35%. With a very large portfolio that is more difficult to achieve. We also work with derivatives to protect our balance sheet for the worst outcomes if they were to happen. There are many large-scale advantages in investing, but there are also small-scale advantages that can bring a lot to the portfolio management.
LAIRD: How have things been for you during the pandemic? I know Sweden took a different path.
BLOMQUIST: Yes, Sweden has taken a different path from the rest of the world. We have not had a total lockdown, but many people have been working from home. We at PP Pension have been working in the office, but also from home. In the short run, it has been quite efficient because you can meet more people and listen to more and different views, but in the long run, you need to meet, and you need to travel. So, we haven’t experienced the full lockdown, but it’s not a normal day in Sweden either.
LAIRD: Who do you look for inspiration?
BLOMQUIST: The leaders who want to create positive things. I’m a strong believer that humanity can solve a lot of issues when we decide to do so. I had a very good role model in the CFO at my first employment at the Treasury department in a construction and real estate company in the late ‘80’s in Sweden, just to mention one person that has inspired me in the financial business.
I am a true believer that everyone wants to do a good thing at work – almost everyone, anyway – and that if you treat people, individuals, colleagues or teammates, with respect, you can get so much more done than otherwise: The positivity and the respect, regardless of where you are in the organization, make you a leader because then you get respect from a lot of people.
LAIRD: How many people are on your team, and what are their broad roles?
BLOMQUIST: As we are quite a small fund, we work with external managers. In the office we are 35 people. We are investing in external managed funds when it comes to equity, fixed income, and some alternatives. The real estate exposure is directly owned. To adjust the risk in the portfolio, we are working with overlays in derivatives which are managed internally.
LAIRD: What is your investment philosophy?
BLOMQUIST: One key thing is separating investments from the real world. We have the real world, and then there is the world of investment opportunities, but over the long run, they are connected. It’s important to not distinguish too much between the two of them. Valuations will fluctuate, but the important thing is to understand what you are investing in and be aware of what you have in your portfolio: Do you like what you have in your portfolio?
Positive cash flows or appropriate leverage will ensure that you never have to be a forced seller; I’m a positive person, but in investment, you should also focus on the downside because if you can live with the downside, you will never sell at the wrong point and then time will work for you.
LAIRD: Can we talk a little bit about how you make those investment decisions? Do you make tactical allocations?
BLOMQUIST: History is a very good projection of the future: In creating a portfolio that will add or give a certain return year after year, you have to rely on history because you have to build your portfolio in a diversified way.
In a tactical way, look at what’s over-priced or under-priced or what will the next thing be. Now you should think about what type of investments are really interest rate sensitive. We will probably have low yields for some more time, but before you become aware, I think they will rise and then interest rate sensitive assets will be hurt. However, I have been wrong before about how low yields can go the last couple of years. When there was a crisis in Sweden in the beginning of the ‘90s, I was making deposits at 475% overnight, so I have been laughing about that. It has been a real pain the last couple of years as we realize that yields can be extremely, extremely low.
LAIRD: What are you looking at in terms of new ideas for the portfolio? Where are you seeing opportunity?
BLOMQUIST: I’m a quite strong believer in impact investing. We all have to figure out how this globe can continue to be our home as it has been, whether it’s regarding water or air or energy efficiency or everything that has to do with sustainability.
LAIRD: What is it that you are most proud of over the past 10 years with PP Pension?
BLOMQUIST: That, during the different crises that we have seen, we have managed to not be forced to sell. We have a five-year return now of 6.25% rolling return, so I’m proud of that.
LAIRD: What advice would you give to yourself 20 years ago?
BLOMQUIST: To be prouder of myself. I have had self-confidence all my life, but if I compare myself to when I meet young men, they show what they are proud of more than women do. Girls are still taught to not talk too much about themselves and not take too much room.
LAIRD: How have you seen women’s roles change in investment management over your career?
BLOMQUIST: When I started in the financial industry in Sweden, it was in the late ‘80s, and the market was newly deregulated. It was a quite young business in that sense, and I enjoyed that environment very much because it was a growing industry, it was a positive industry, even if we had a crisis. When I started out, it was not uncommon to be a woman, but gradually they dropped out. The industry has not been good at supporting the women that started when I started.
LAIRD: How do you think the industry can better support women?
BLOMQUIST: You have to understand that it will be better business if you have both women and men. It’s not numbers; it’s the power of the decision-making that has to be more equal. I have been in recruiting positions where I have wanted to have a woman and I’m told by recruiters, “There’s no women. We have looked. We haven’t found anyone.” I have had the experience to be able to say, “If you don’t find a woman that is actually competitive with the men that you have been showing, then I will go to someone else,” and then suddenly you have a woman who is really equal. They often take the easy way out: They bring a woman candidate, but maybe she’s not as good as the male candidate, and then it’s an easy choice to take the male because he was more qualified. That’s something you can do as a leader in an organization, show that it’s really important because it will give you better business: You will miss a lot of opportunities if you don’t have women.
LAIRD: Are you asking investment managers the question about the diversity of their teams?
BLOMQUIST: When you meet a manager, they talk a lot about sustainability and UNPRI, and then when you come to the presentation, when you see the portfolio managers and the organization, it’s mostly men of course: One year ago or two years ago I’ve decided to pose the question, “Why do you in your organization not live up to the goals that you are telling the companies in your portfolio to do?” They feel a bit uncomfortable because they realize, “Maybe the clients are starting to ask that we in the business do certain things and not just the companies we are investing in.” I see a big dispersion within managers when it comes to diversity. Some managers are working harder to achieve it than others, but I think that all need to do more.
LAIRD: Let’s talk a little bit about you and your background.
BLOMQUIST: I moved away from home to go to high school, so in that sense, I started to be responsible for myself quite young. I went to the Stockholm School of Economics, and I started to work then in the late ‘80’s in a construction and real estate company. I had the opportunity to enter a management trainee program. Later I joined the Treasury team managing the interest rate and FX risk for the Group. We had clear mandate to add value by actively trading the market. It was a very special period in the beginning of the ‘90’s, and I learned a lot about having control of your risks. Then I joined one of the national pension funds here in Stockholm. Now’s it’s AP1. At that time, we had one third of the portfolio in government debt in the portfolio. You had to invest very differently because you had such a huge amount then. I spent 11 years there, and I was in the executive management team the last couple of years for that fund. I was excited to join PP Pension as CIO when I got the offer from the CEO who at that time happened to be a woman! I enjoy the size of the portfolio which I think is a sweet spot when investing capital. I also enjoy the long-term investment horizon when you are working with pensions.
LAIRD: What brings you joy?
BLOMQUIST: To be with friends and family, and a lot of outdoor activities. I enjoy skiing and running. Family is also important: I’m married; I have 2 children, a daughter now 22 and a son 25, and they have both been elite hockey players, so we have spent a lot of family time in different ice rinks, both in Sweden and the U.S.
When you talk about what advice you should give to younger women, I emphasize: Keep a balance because you will not be successful if you are not happy, and you will not be happy if you don’t have friends. It’s not necessarily a matter of having a family – I don’t evaluate that – but you need to have a private arena that you should not just put aside, because men don’t put that aside, and that’s very important – to have balance in life. You have to choose an organization that sees your value and is valuing you to have both a private life and professional life, and in the long run you will be a better professional if you also have a private life.