Diversification Is Part of the Program for Katrin Rahe and Swedbank

Katrin Rahe had planned to be a computer programmer, but a code change in her native Estonia — namely, independence from the former Soviet Union in 1991 — set her on a different path. Although she persevered to get her master’s in computer science in 1997, she took a job as a risk manager, and later portfolio manager, in the reserves management department of the Bank of Estonia, earning a CFA along the way. “Not many people understood how financial markets worked back then,” she recalls.

After 13 years at the central bank and an 18-month stint in private banking at Nordea Bank, Rahe knew enough about markets to take over the management of Swedbank’s Estonian second-pillar pension funds in 2010. At the time, the market economy was looking almost as dicey as Communism in its dying days. But not one to lose faith, Rahe has worked with her team of 15 investment professionals to eke out steady returns.

Global diversification has been key. The funds, which now have €1.1 billion ($1.25 billion) in assets, do most of their trading in developed and emerging-markets stocks because of the small, illiquid nature of the Baltic markets. In 2011, to gain yield, Rahe and her team added euro-denominated emerging-markets debt in their fixed-income portfolio and tilted from sovereigns to investment-grade corporates in their core euro zone holdings. They also added to their Baltic real estate holdings last year with the aim of raising the funds’ allocation to 10 percent. Rahe sees property as a source of yield in today’s low-rate environment and a hedge against inflation.

The €659 million Swedbank Pensionifond K3, the largest of the bank’s four pension funds, was down 5.4 percent in the 12 months ended April 8, but Rahe’s approach has helped the fund return 9.1 percent over the past three years.

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