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Ilmarinen posts 7.2% annual return as private equity generates 27%

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Ilmarinen, one of Finland’s largest pension insurance companies, reported a 26.8% return on unlisted equity investments for 2017.

In preliminary financial results for 2017, Ilmarinen said its investment portfolio returned 7.2% last year, up from 4.8% in 2016, with equities the main driver behind returns.

Following its merger with smaller rival Etera, which took effect at the start of this year, the market value of Ilmarinen’s investments rose to almost €45.8bn, the company said.

Timo Ritakallio, Ilmarinen’s outgoing chief executive, said the result “clearly exceeded expectations” with all asset classes yielding good returns.

“Economic development in all of the main market areas was positive and, thanks to improved corporate earnings, equity investments performed particularly well,” he said.

Of the main asset classes, equities produced the highest return at 14.8%, but within that, non-listed equities returned 26.8%, the company reported.

Fixed income produced a 1.8% return and real estate generated 5%.

Meanwhile, Etera made a 6% return on investments according to preliminary data, Ilmarinen said. Etera’s final accounts will be published later this month.

Market volatility ‘not a cause for concern’

Mikko Mursula, Ilmarinen’s CIO, told IPE that the turbulence on global stock markets seen this week was not a cause for concern, but rather part of a higher level of volatility now likely to be seen across all asset classes, following strong growth in the years since the financial crisis.

“The positive fundamentals are good,” he said, citing the International Monetary Fund’s global economic growth estimates for this year and next.

So far, the corporate reporting season had shown businesses were able to produce better-than-expected aggregate results, he said.

“But we need to keep in mind that we will now see higher volatility across all asset classes, and  investors need to be prepared for that,” Mursula added.

Etera integration

Ilmarinen’s investment strategy would not change as a result of the merger, Mursula said.

“If we are going to make any changes, it will almost all be because of our market view going forward and not because of the merger,” he said.

Ilmarinen has been managing the two portfolios as one since the beginning of this year. The biggest difference between the asset allocations of the two portfolios was the solvency ratio, with Etera having had a smaller exposure to listed equity, Mursula said, at around 20% compared to Ilmarinen’s approximate 35%.

In relative terms, Etera had more investments in real assets, at nearly 20% of its portfolio compared to Ilmarinen’s allocation of below 15%.

“Since our long-term strategy has been to increase our allocation to real assets, we were happy to get more of these from Etera, but the big picture is that the merger has not changed our investment strategy,” Mursula said. 

Varma, until Ilmarinen’s merger clearly Finland’s largest pensions insurer in terms of assets under management, is due to publish its preliminary data for 2017 next Friday.

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