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Varma lifts hedge fund allocation as it posts 5% half-year returns

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Finnish pensions insurance company Varma saw its investment return increase to 5.0% in the first half of this year from 3.2%, and shifted some of its equity holdings into hedge funds.

In its interim report, the company said total investments grew to €39.6bn at the end of June from €36bn at the end of December.

Solvency capital climbed to €10.3bn at the end of June, amounting to 34.9% of technical provisions, compared to up from €8.1bn in capital and 28.8% at the same point in 2013.

Risto Murto, Varma’s president and chief executive, said: “Financially, Varma is the strongest it has ever been.”

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Varma’s total result for the six-month period was €1.15bn, up from €430m for the same period the year before.

Equities produced a return of 7.2%, little changed from the 7.1% generated in the same period last year, even though central bank measures and conflicts in Ukraine and the Middle East had sparked swings in share prices in the period, Varma said.

Fixed income returned 3.2%, up from 0.2%, and property generated a return of 3.2%, up from 2.8%, the company reported.

Varma said it changed the investment allocation in the second quarter by shifting equity overweight to other investments — mostly to hedge funds. 

As well as this, its share of fixed income investments rose during the first half, it said, but added that equities remained its largest asset class at 37% of the portfolio.

The allocation to hedge funds rose to 17% at the end of June from 13% at the end of March.

Reima Rytsölä, Varma’s CIO, said the investment environment in the first half had been better than expected, with central banks’ monetary policy stimulus helping equities rise.

“The big question now is will the real economy recover and live up to the expectations set by the equity markets,” he said.

Rytsölä said that as a more open economy, the euro zone was more sensitive to global political crises than the domestically driven US market.

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