“Focus on portfolio robustness”: Investment opportunities and strategies with CIO Haakon Kavli

As the investment landscape shifts further into the unknown future, wealth and asset managers are preparing for multiple scenarios that can play out. With IMpower FundForum returning for its 35^th anniversary in 2025, we’re speaking to industry leaders about their views on the market and how they’re navigating and assessing the investment landscape. This time, we hear from Haakon Kavli, CIO at Reitan Kapital, who shares key aspects of Reitan Kapital’s investment strategy and explores the top challenges everyone faces: risk management and strategic asset allocation.

Where are the biggest opportunities you see emerging?

Risk premia are very tight across the board. Credit offers little pickup over rates. Equities offer next to nothing over credit on a forward-looking basis. In many ways it seems like opportunities are fading away rather than emerging!

We look for opportunities in markets where compensation for risk is rising, or at least is well above historic averages. We have liked catastrophe bonds for this purpose over the last couple of years. But we should not forget to mention that ever cheaper index funds remain the best opportunity to build instant, low cost, liquid diversification with fair market return!

Is there an asset class that you are watching and exploring before diving in?

Our portfolio is already very well diversified with exposure to all the main asset classes. And we have a high liquidity requirement, which rules out many alternative asset classes.

With this backdrop, we are watching systematic market neutral hedge funds, semi-liquid alternatives to private equity, litigation finance, collectibles, commodities, tactical asset allocation overlays, and anything else that might improve diversification without reducing expected return net of fees.

How are geopolitical shifts influencing or informing your investments?

Geopolitical shifts are a major source of uncertainty and is particularly difficult to quantify and manage. Reitan Kapital will never take a discretionary view on geopolitics to generate alpha, but we will look for active approaches to diversify and contain such risks. It will be important to have a complete understanding of how our portfolio might have inadvertent concentration of risk exposure within certain segments of the economy such as semiconductors, commodities, or even regions. In the current geopolitical landscape, there are potential black swans around every corner, and we have to focus on portfolio robustness.

What will you be doing more of in 2025? What will you be doing less of in 2025?

We will do less illiquid investments. Their diversification benefits are hard to measure accurately, they seem to offer little excess return beyond what the average investor should require for illiquidity compensation, and the alternative cost of locking up capital for multiple years is very high for us.

We will do more tactical asset allocation (TAA). We have begun exploring the potential for an evidence based, data driven, systematic approach to TAA. This will never be a major contributor to performance, but should add a few basis points per annum within a very tight risk budget for tracking error.

What are you most looking forward to discussing at IMpower FundForum this year?

I always bring up the same topic when speaking to experienced investment managers: Where do they see potential to find a truly uncorrelated risk factor from the real economy that its participants are willing to pay a premium to offload into capital markets? The risk should be completely orthogonal to the business cycle, it should be accessible in a liquid format, it should not be sensitive to liquidity conditions, interest rates or other risk factors already present in our portfolio, and it should ideally not be financialised to the point where it is affected by the volatility of investor sentiment. This is my holy grail, and I ask every person I meet in this industry for hints of where to find it.

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