Pension investors generally saw strong returns over the course of 2014 but for many it will be a one-off boost at the expense of growth in 2015.

Many institutions, including the Government Pension Fund Norway, warned that their benchmark-busting performances would be hard to repeat, after interest rates continued to fall. 

Olaug Svarva, managing director of the Norwegian state fund, says the 10.7% return is the best seen in six years but the current economic environment will only create headaches in future. “We are concerned about what low and negative interest rates could mean for how capital is invested, and for the economic development over time,” she says.

Economic development, and how to gain exposure to economic growth, is an important issue for other Nordic investors, such as Finland’s Varma, due to the stagnation of the domestic market. 

Varma benefitted from strong US markets. Reima Rytsölä, the €40bn pensions mutual’s CIO, says its return was boosted to 7.1% thanks to its exposure to the US market. “Instead of a stagnant Europe, we were involved in a growing economy,” he says. 

Lack of growth in Finland also resulted in some changes to the portfolio of the €34.2bn Ilmarinen, with the provider only extending €55.5m in new loans to domestic companies, and its direct lending portfolio falling 17.6% in size. “The level of investment among Finnish corporates has been at a very low level – that’s the main driver for this development,” says Timo Ritakallio, chief executive at Ilmarinen. “The lending portfolio increased rapidly in 2008 and 2009 because, at the time, it was very difficult to lend from banks.” 

But he adds that, with a low level of inward investment and a slumping domestic economy that is seeing GDP growth decline, companies are not looking to borrow. 

Growth came partially from Ilmarinen’s more diversified equity holdings in Asia. The provider grew its Chinese exposure over the course of 2014 and has a small presence in the country to help it better understand the market. Japan, which in 2013 boosted returns, declined in importance in the portfolio but is still of interest, says Ritakallio. 

Sweden’s AP2 is also one of the investors convinced by Chinese growth. The SEK294bn (€32bn) buffer fund, which returned 13.3%, is so satisfied with its Chinese exposure that it decided to double its size to $400m (€378m). 

The decision to double its mandate came on the back of the existing holdings generating investment returns of 59%, and complements steps taken to increase exposure to more emerging market equity and debt, as well as to bring responsibility for the mandates in-house.

Despite its strong double-digit returns, AP2 lagged behind AP1’s return of 14.6%, 13.7% returns at AP3 and the 15.7% return announced by AP4.

Returning to the windfall gains stemming from low interest rates, France’s Fonds de Réserve pour les Retraites (FRR) said its hedging portfolio returned 8.2%. It said the renewed fall in interest rates had been unexpected after the decline in 2011 and 2012, alongside the “corresponding increase in the market value of bonds” at the time. 

Domestic exposure boosted FRR’s returns, as one-third of its hedging portfolio comprised French bonds, and, similarly, Denmark’s PFA Pension was rewarded for its local equity holdings, which returned 18%. 

However, as similarly experienced by the Government Pension Fund Norway, PFA’s results were boosted by the devaluation of the krone, and will be hard to repeat in years to come. 

While the boost in competitiveness for Danish companies may be positive for PFA Asset Management’s director Jesper Langmack, the currency fluctuations will raise questions for the viability of the krone’s peg to the euro, which could put future growth at risk.