Alternative assets such as infrastructure and real estate have been a popular way for Nordic pension funds to pump up returns.
But the latest crisis just exposed how risky many corners of the asset class are, when liquidity suddenly dries up.
As the chief investment officer of Ilmarinen Mutual Pension Insurance Co., Mikko Mursula oversees about €46 billion ($52 billion) from his office in Helsinki. He says that "one of the key lessons" he just learned from the turmoil triggered by COVID-19 is "the importance of liquidity."
The panic that hit markets in March, when much of the global economy was shuttered to fight COVID-19, revealed that many institutional investors were dangerously short on liquidity after stocking up on alternative assets. And the returns they were getting weren't compensating them for the risk.
"In some subasset classes, you didn't earn enough of an illiquidity premium anymore," Mr. Mursula said.
In the years leading up to the latest crisis, pension funds had turned to alternative assets as a way to pick up extra returns, against a backdrop of ultra-low interest rates and expensive stocks. Alternatives aren't as easy to buy and sell as stocks and bonds, but for long-term investors like pension funds, that wasn't supposed to be a problem.