State fund to boost economy through corporate debt
FINLAND - The ministry of finance is to allow the State Pension Fund VER to purchase commercial paper in “significant and solid Finnish companies” as part of a series of proposals to help boost the Finnish financial markets.
Plans outlined by the ministry of finance include a proposal to be submitted to parliament in early February allowing state capital investment in deposit-taking banks through interest-bearing subordinate loans.
The government will also grant state guarantees to the refunding of Finnish banks up to a maximum of €50bn for the period until 30 April 2009, at which point it will conduct an evaluation of the need to continue the guarantees.
As a condition of the loans and the guarantees, the payment structure of the banks’ top management will be reviewed as it “must not result in excessive benefits”, while performance and other bonuses need to be results-based.
In addition, the ministry of finance confirmed that it had decided to “grant the State Pension Fund VER the right to a limited use of the assets in its possession to acquire commercial papers of significant and financially solid Finnish companies.”
The €10.4bn state pension fund, Valtion Eläkerahasto (VER), acts as a “buffer fund” to provide for future pension liabilities and build up reserves to even out pension-related expenditure
Its investment strategy is currently limited by rules set out by the ministry of finance, which are overseen by a board of directors appointed by the government.
In 2008, the board it stipulated the fund’s allocation to fixed-income assets had to be at least 45%, while equities cannot exceed 45% and the share of other investments must not be higher than 12%.
However, the ministry of finance said the change to the investment rules allowing the pension fund - which lost 15.4% in 2008 - to invest in “solid” Finnish companies would “promote the recovery of the commercial paper market”. (See earlier IPE article: 2008 volatility hits more Finnish funds)
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