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  • 2008 volatility hits more Finnish funds

FINLAND - Etera Mutual Pension Insurance Company has reported a €1.2bn fall in the value of its assets in 2008, while Eläke-Fennia saw a negative return of 12% and VER suffered further to lose 15% last year.

The Etera pension fund revealed in its preliminary results the annual investment return for 2008 was -17%, compared with 4.5% in 2007.

Despite this, Etera said its solvency position is still strong at 2.4 times the solvency limit, though the capital adequacy ratio had more than halved at 14.3% of technical provisions against 31.2% in the previous year.

The preliminary figures, published ahead of the full results in March, also estimated the value of the firm’s investments had dropped from €6.1bn to €4.9bn over the space of 12 months.

“2008 was a tough year from the investor’s point of view,” said Mika Pesonen, chief investment officer of Etera.

“It was not enough that returns from risky assets collapsed. The lack of liquidity particularly at the end of the year was also a problem. The rules that traditionally govern investment activity no longer applied.”

Even though there were losses on investments, the pension firm revealed it would pay €4.5m in client bonuses, which is equivalent to around 0.2% of the payroll of those insured with Etera.

Elsewhere, Eläke-Fennia posted slightly better preliminary figures as it reported an annual investment return last year of -12%, although this is still significantly lower than the 4.1% yield in 2007.

Lasse Heiniö, president and chief executive of Pension Fennia, said the decision to reduce risk at the end of 2007 through the controlled sale of shares - before the stock price began to fall - “had proved to be in the right direction”, as it had “limited the number of investment losses”.

Pension Fennia also estimated it would pay customer bonuses of around €6m, or 0.13% of the payroll, as it revealed a solvency level of 2.6 times the legal requirement and a capital adequacy ratio of 12.9% of technical provisions, following a 12% increase from insurance premium income.

And Valtion Eläkerahasto (VER), the State Pension Fund, reported a negative return of 15.4% in 2008 in its preliminary figures, compared with 1.8% the previous year.

The data published ahead of its final results in March showed the value of the fund’s investments had dropped to €10.4bn - a fall of almost €2bn from 2007, and only slightly above the €10.3bn reported in 2006.

Timo Löyttyniemi, managing director of VER - a pension investment fund used to cover future liabilities and balance pension expenditure - revealed only money market instruments and government bonds “produced a moderate return” in 2008, as the overall fixed income return was 4.3%.

Löyttyniemi said: “The investment year 2008 was highly challenging for pension investors. The effects of the global financial crisis were visible in nearly all asset categories. Throughout the year, the State Pension Fund applied a below-normal risk level for its investment portfolio. At the end of the year, equities accounted for 31% [of asset allocation].”

VER is limited in its investment strategy by rules set out by the Ministry of Finance. In 2008 those rules stipulated fixed income assets must be at least 45% of the portfolio; equities must not exceed 45% and other investments must account for mo more than 12% of the fund.

VER confirmed 31% of its assets were in equities at the end of 2008, while 61% of assets were invested in fixed income instruments and the remaining 8% was allocated to other asset classes including real estate, absolute return funds and private equity.

The final results for Etera will be published on 3 March, while VER will issue its full figures for 2008 on 2 March.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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