One of the great mysteries in the investment world to me, as an advisor squarely focused on long-term oriented opportunities, is why many corporations like Nokia do not appeal directly to public pensions for investment in their firms. Public pension pools now collectively dwarf the size of major banks and investment firms. Few large private pension plans still exist, one of which is Nokia’s.
Pictured Above: Nokia Chair of the Board of Directors Sari Baldauf
Instead, the CEO’s generally make their case to so called “asset managers,” who often have conflicted interests. One such conflicted interest being mergers and acquisitions designed to benefit other clients and generate predatory monopolies.
Here in lies an extraordinary opportunity for Nokia. This is because Nokia sponsors defined benefit pension plans for its own employees with more than $20 billion assets, assets that are now, per its most recent SEC filing, 71 percent invested in fixed income.
The plan is also more than 20 percent over funded, meaning Nokia has set aside 20 percent more than required to meet future benefit obligations.
Source for funding status: Nokia Q4 2022 Earnings release, Page 23
The funded status of Nokia’s defined benefit plans decreased to EUR 4 379 million, or 123.9%, as of 31 December 2022. During the quarter the global defined benefit plan asset portfolio was invested approximately 71% in fixed income, 5% in equities and 24% in other asset classes, mainly private equity and real estate
Here in the U.S. this would make Nokia vulnerable to a takeover by a corporate raider, whose first act would be to remove the excess pension assets. Such a raider could generate more than $4 billion with such a move, an amount that accounts for almost 15 percent of the entire market value of Nokia’s stock.
What Nokia should consider is investing 7.5 percent of its $20 billion in defined benefit plans directly in Nokia, giving the pension fund an ownership stake of approx 5 percent of Nokia. The plan would still be highly diversified and more importantly expose beneficiaries to needed equity growth given a more inflationary environment.
Of course lawyers, actuaries, accountants and pension consultants would argue against this because it would not suit their other clients salivating at the possibility of acquiring and looting Nokia.
Such a move would help solidify the long term oriented institutional investment base and more importantly provide the pension plan participants an excellent opportunity. Slowly reducing float via buybacks is also prudent over time yet there would be no special shareholder approval or cash outlay for such a pension plan related investment. If long term ownership stability is the goal, perhaps this is a better decision?
CEO Lundmark should also consider dispatching his CFO to visit to public pension funds, beginning in Canada, to seek additional direct institutional investment.
Photo Above: Nokia CEO Pekka Lundmark
Charles Schwab Institutional Investment Conference Comment To Goldman Sachs
While at Charles Schwab’s institutional investment manager conference in Denver last November, when asked by a couple of managers from Goldman Sachs what my criteria was for accepting new clients, I replied that they would need to make Nokia 7.5 percent of total assets and also place 50 percent of their assets in 6 month US Treasuries as a starting point.
They were quite surprised yet also familiar with my work, including taking on Microsoft more than 20 years ago over its financial practices regarding stock options, in addition to challenging the the financial practices of private equity and hedge funds, including abusive tax schemes. Interestingly, per SEC documents, Goldman started accumulating Nokia stock a week later and as of Nov 30th had a stake of almost 5 percent of the company.
Formal Question to CEO Lundmark for consideration in the upcoming earnings call later this week: Have you considered recommending that the pension committee invest 7.5 percent of its assets in Nokia itself.
If a Nokia representative would like me to ask this question directly, please feel free to email me at either email@example.com or firstname.lastname@example.org. It could be submitted either live or via a pre-recorded voice memo.