FINLAND - Varma, Finland's largest pension fund, with €33bn in assets, shunned fixed income investments and troubled euro-zone bonds in 2010 in a strategy that produced a return of 11% over the year.

The scheme, along with Tapiola Pension, instead chose to increase its exposure to equity, with stock portfolios returning 19.8% and 23%, respectively.

Hanna Hiidenpalo, Tapiola's investment director, said its equity investments focused particularly on well-established global companies, while also increasing exposure to emerging markets.

Its shift in asset allocation saw the scheme increase is exposure to equity by 6 percentage points to 34.6%.

Hiidenpalo said: "Overweight on corporate bonds and a significant underweight on European peripheral government bonds had the biggest impact on the difference in returns compared with the European interest rate markets."

Risto Murto, chief investment officer at Varma, said expected real returns on bonds were simply too low for long-term investors.

"In addition to which the financial crisis has brought credit risk back to government bonds," he added. "Varma has avoided investments in government bonds in troubled countries in the euro area."

Both companies also highlighted that their solvency positions remained strong, with Tapiola's solvency ratio remaining constant at 2.5 times necessary funds, despite temporary changes to the legislation, while Varma slipped slightly to 1.9 times of assets required.

Tapiola further noted that its active currency hedging strategy paid dividends, as well as its exposure to the Nordic stock market, where its holdings returned 37.5%.

It remains Finland's fifth-largest pension fund according to IPE's Top 1000 Pension Funds, with €9.3bn in assets as at December.

The state pension fund Valtion Eläkerahasto, Keva and Ilmarinen, which fill the remaining slots in the country's top five, have yet to report preliminary results.