Five years after Stefan Ericson started the Stockholm branch of Norwegian-owned Pareto Asset Management, the office has grown by almost 30 people and doubled its assets under management to EUR 5.3 billion.
Ericson has two roles as branch manager of the Swedish operations and responsible manager of the fixed income fund 'Pareto Global Corporate Bond' alongside Mathias Lundmark.
"Mathias Lundmark and I started the Swedish business five and a half years ago. The Stockholm office is a front-line business with asset management and sales. A large part of the office is the broker business. Here in Stockholm we are a bit of a boutique asset manager," Stefan Ericson tells Realtid.se in an interview.
When asked about his recipe for success, Stefan Ericson says:
"For me, it's about constantly innovating. Of course, all new things are not always good, but I always want to challenge the business and be quick-footed in comparison with competitors. It is important to understand that a non-decision is an active decision. Sometimes it may feel easier not to make decisions on strategy and allocation issues, but for me it is about constantly renewing our picture of reality and how the organization seizes the opportunities that arise.
" Fixed income industry is redefined
In recent years, his personal favorite, the fixed income space, has undergone major changes. The continued low interest rate situation has forced the sector to re-evaluate all previous models and attitudes. The introduction of interest rate ETFs and the shift from publicly listed bonds to private are such examples.
"In the new situation with negative interest rates, the fixed income industry has had to redefine the entire business. What was previously predictable stable income today slides towards zero. Approximately 53 percent of all international capital is currently fixed income," he says.
"As asset managers, pension funds and other institutional investors try to maintain a 6 to 8 percent annual return, it is no longer enough to hold government securities or investment grade corporate bonds in the portfolio. Today, you have to take more risk to reach such returns. Market expectations are in conflict with the real returns the asset classes provide," he points out.
Negative interest rates are a mistake
Stefan Ericson thinks the new interest rate situation is not ideal. When Sweden lowered official rates to negative, he communicated his dissatisfaction in unmistakable terms. He called the decision "a mistake".
"When central banks press interest rates downwards, asset managers need to take more liquidity risk and lend even more to reach the same return. In my world, it is unsustainable for the central banks to keep inflation targets so high when the outside world faces so many other challenges."
"I think we should have a more flexible approach to inflation moving between 1 and 3 percent and not take further measures if it is, for example, 1.2 percent, as has been the case with the Swedish Riksbank. Based on a mathematical model, the decision was what everyone expected. But I think you should stop and ask yourself if the model might be wrong. In the past, I thought the lower interest rates were not in line with the outside world. We did not have such a monumental crisis in Sweden," he explains.
This post originally appeared on AM Watch.
