Finnish pension funds defend domestic investment stance
Finnish pension funds VER and Ilmarinen have defended their levels of investment in the local economy in the face of concern that Finnish institutions are becoming less able to invest in domestic equities.
Kari Järvinen, managing director of state investment company Solidium, expressed concerns that investment bias of consumers and corporations in the country away from Finland was working against a domestic economic recovery.
He told IPE: “Life companies, pension companies and P/C (property and casualty insurance) companies all have a diminishing capacity for various regulatory and portfolio reasons to invest in Finnish equities.”
He said Varma and Ilmarinen had both said that, for portfolio reasons, their share of Finnish equities was likely to be smaller in future, while KEVA was likely to be a net seller in the coming years due to pension outflows.
For Finland to interest investors, he said, the country must make sure the market functions and that all aspects of the environment are attractive for investment.
“I have been particularly worried about the competitiveness of Finnish industry, as well as the regulatory and tax environment affecting the owners,” he said.
“The fact private ownership in listed companies has been hit by several tax hikes in the past is a particular concern.”
Timo Ritakallio, president and chief executive of pensions insurance company Ilmarinen, said he did not agree Finnish investors were increasingly investing outside the country.
“The Finnish pension investors have invested almost 30% of their equity investments in the Finnish equities,” he said.
“The share of Finnish equity investments is only slightly lower level that it was 10 years ago.”
Looking at other asset classes, particularly real estate, he acknowledged that Finnish pension insurers were increasingly diversifying their investments outside Finland, adding that this was also the case for Ilmarinen.
Of its total investment assets of more than €37bn, 30% is invested in Finland.
“Ilmarinen is, for example, a key anchor investor in several listed companies and a major infrastructure investor,” Ritakallio said.
“Therefore, we do not see any need to increase the share of the Finnish investments in our investment portfolio.”
Timo Viherkenttä, chief executive of state pension fund VER (Valtion Eläkerahasto), said those investors that had not started diversifying their investments internationally now seemed to be doing so.
But he added that Finnish pension funds did have a substantial share of their investments in the domestic market, even though the funds are relatively big in comparison to the domestic investment universe.
“However, it is our job to take care of the pension money in an efficient way that enables pensions to be financed without needlessly high contribution rates,” he said.
This, he said, is the most direct way to help the Finnish economy.
“There are sometimes too high hopes on how investment in the domestic market would bolster the economy,” Viherkenttä said.
“If we think of buying shares in a domestic listed company, the mechanisms through which this would actually help our economy are pretty unclear.”
Viherkenttä said the notion that the pension fund would nominate “patriotic” directors to the board, who would favour investing in the home country regardless of the investment calculus, was rather “disturbing”.
Ritakallio said Ilmarinen’s goal was to keep pension contributions on a reasonable level and the Finnish national economy competitive.
“Diversification is a key element in our investment strategy,” he said.