LP spotlight: Karita Meling, head of private equity at Finland’s Elo

Today, Elo Mutual Pension Insurance Co. is among the most active limited partners in Northern Europe with over €29 billion in assets under management. Formed through a 2014 merger of Pension Fennia and LocalTapiola, Elo provides for 246,000 pensioners and manages future pensions for around a half-million Finns, serving a third of all companies in the country and some 40% of its self-employed.

According to PitchBook data, Elo has recorded around 250 fund commitments to date. Only two other pension funds in the region have recorded more: Finnish peer Keva and Denmark’s Industriens Pensionsforsikring. Around half of Elo’s commitments have been in private equity funds, with the rest split across venture capital, real assets, private debt and other private market strategies.

As part of our new LP spotlight series, we spoke with Karita Meling, Elo’s head of private equity, to learn more about the pension fund’s strategy, its investment priorities and her thoughts on the future of the asset class.

PitchBook: How big is Elo’s private market allocation now, and how has it changed over the years?

Meling: Private market opportunities have remained attractive, and our allocations have increased. We remain believers in private markets.

We treat private equity as regular equity—they carry the same solvency requirements. If you have to choose between listed equities and private equity, the returns of private equity still have been high and more sustainable. Also, the fact that they are quoted only four times a year makes them less volatile to market movements. The current level of 10% to 11% is quite optimal for our program.

How do you prioritize your relationships with private equity fund managers?

Over time, our portfolio has tended towards 10 to 20 managers, but we remain broadly diversified. That includes local, pan-European, US and global strategies, as well as sector-specific strategies which each have their own bucket.

In terms of geography, we don’t target venture capital investment outside of Finland, and the local market is a fraction of our portfolio. We have more than €3 billion in net asset value and less than 10% is in the Finnish market, so our main exposure comes from the US and the European funds.

During the pandemic, we were focused on re-ups with existing managers, as it’s very important for us that we’re able to meet the teams in person when establishing new relationships. If we had a good relationship with a potential manager before COVID then we could proceed, but if we found someone totally new during that time, we couldn’t. Now people have started traveling again. New relationships might come into favor, but I feel that we have a quality portfolio and are quite happy with our managers.
 
To what extent does Elo make direct investment in private equity, and do you see that changing?

We invest directly into funds—rarely, funds of funds. Manager selection and fund due diligence are conducted in-house, as are the ongoing coverage and monitoring of investments and relationships. Our share of co-investments is below sector average and is expected to gradually increase over time.

How has the current macro-economic environment and geopolitical situation in Europe impacted your investment priorities?

It is too early to have a view, but we are mindful of the risks. We expect the fundraisings to get a bit delayed for both managers and investors to evaluate the situation. Having said that, we also have a strong belief in the chosen managers to ride the storms.

The crisis in Ukraine is devastating, but I believe that the private equity asset class is flexible. At the same time, it is important that we are investing responsibility. During COVID, we saw the acceleration of the digitalization trend, and [we] may yet see other trends speed up, such as the adoption of renewables and reduced dependence on oil and gas.

When looking at ESG, how do you ensure that managers’ priorities align with your own?

During due diligence interviews, we dedicate a fair share of it to ESG matters. We also have a standard-format ESG questionnaire we expect to complete ahead of meetings. We interview teams but also do in-person interviews with responsible people on their particular policies.

Our policies follow the broader market guidelines, but they could include fund-specific issues. Our climate change efforts, including our 2020-2025 climate change strategy, have emerged as the focus, and we monitor closely the most advanced managers in the field and, where appropriate, encourage others for braver initiatives. Increased regulatory requirements push these initiatives forward.

Featured image of Helsinki by Miemo Penttinen/Getty Images