VER's Löyttyniemi prepares for an elegant exit

It is unusual to return to a professional role after years away. But much can be gained from a fresh perspective, both for an individual and their organisation.

So it was for Timo Löyttyniemi when he returned to Helsinki to reprise his role as chief executive of the State Pension Fund of Finland (VER) in 2020 after almost half a decade working in Brussels. An advertisement in the Financial Times in 2014 had led to a five-year term as vice-chair of the Single Resolution Board (SRB) of the EU.

“I was responsible for building up the [Single] Resolution Fund, which grew during my time to over €30bn, and now it’s roughly €80bn, so it was really interesting work,” Löyttyniemi tells IPE about his work on the SRB’s emergency fund that can be called upon in times of crisis.

“But then I was also happy to come back,” he continues. “This EU work was non-renewable, and there was the option to come back with fresh eyes and new motivation.”

The time in Brussels was an eye-opener for Löyttyniemi, particularly regarding financial stability – an area of expertise he intends to use in the new phase of his professional life when he retires as VER CEO early next year.

Is he proud of what he’s achieved at the now €24.5bn buffer fund for Finnish state employee pensions?

“Absolutely,” Löyttyniemi says. “I was the first permanent CEO of the fund when I started in 2003, and I started developing the teams. In terms of being proud of all those years, well, we’ve been able to avoid large mistakes – which is one goal for any organisation. 

Good track record

“We’ve protected a professional investment organisation well, including its reputation, and we’ve had a good track record on returns too – over five years, 7.1%, and the long-term average has been 5.5%,” he points out.

Over all the years as CEO, the added value above the financing rate for the Finnish government had been around €12bn, Löyttyniemi says.

“We’ve been able to ensure that this system exists and works well – sufficiently well, I should say, because no system is perfect when the government is involved, as politics may always play a role, of course,” he says.

VER now has 28 staff – up from just eight when Löyttyniemi started as CEO in 2003. 

“When I came on board, it was just the right time because it was easy to develop the fund with an enthusiastic attitude,” he says. “The first thing I wanted to add was performance measurement, and we became the first fund in the Finnish context to give out long-term statistics of the performance such as Sharpe ratio and excess returns against the benchmarks.

“So we were a very high transparency fund, at least compared to the others in Finland, but also internationally.”

Later came risk management, and then asset diversification. “We started expanding to private assets, building the content along the way,” Löyttyniemi continues. “We started with private equity, then we began building real estate funds, infrastructure and private credit.

“We also built the fund’s brand,” he adds. “We had been known as the state pension fund, but then we started to use the acronym VER. I think that was good because it was easier to remember.”

Reflecting on the wider world of pensions, Löyttyniemi finds it surprising how different schemes can be from one country to the next, and whether they are state or private. “Making decisions about pension systems can be very difficult, because it’s so long term,” he says.

Many systems have changed over the years to defined contribution from defined benefit, he observes, noting that even the Dutch system – one of the best in the world – was forced to change because of the 2008 financial crisis and reputational issues.

“It hasn’t happened in Finland yet, though, because the current system has been working well and there’s been hardly any criticism of it,” Löyttyniemi says. “But, certainly, in the years to come that should be on the agenda too.”

European pensions face changes

Population growth is another factor for pension design, he says, citing the uproar in France over an increase in the pension age as an example of the challenges faced by many European systems. “It is challenging, and that challenge is not going away; it’s getting stronger with the years,” Löyttyniemi notes.

Far from slowing down when he bids VER farewell in 2026, Löyttyniemi is taking on new positions to add to his current array of board-level roles. 

On the decision to retire now, he says: “I could have continued for three more years, because this job is absolutely fantastic and interesting, and it’s a very nice working environment. But also I felt this was absolutely the right time.”

Löyttyniemi says that he intends to continue as chair of a foundation giving grants and scholarships to PhD students and researchers in business and economics, as well as sit on the board of the Finnish state holding company Solidium, which is an active owner in more than 10 large stock exchange-listed companies.

“The key element here is I will continue my career, but in a [slightly] different format,” he says. “Earlier, I also sat on various investment committees, for example at CERN, and I have chaired some of those committees, including Aalto University’s. I may continue in these types of board and committee roles internationally,” he says.

“I could have continued for three more years, because this job is absolutely fantastic and interesting. But also I felt this was absolutely the right time”

Alongside this, Löyttyniemi is about to become a professor of practice at Aalto University, based in Espoo, in a continuation of the academic work that has run alongside his main career at VER.

“In the early 1990s, I lectured the Principles of Finance course for four years, and I also ran a corporate control course,” he says. “This spring, I lectured in some of the executive education courses on financial stability topics.”

Need for public backstops

The financial market turmoil of 2022-23 has been a focus for Löyttyniemi’s thinking, and he recently published a working paper on the need for public backstops from governments in response.

He argues that the main catalyst for the disturbances in financial markets was the manipulation of energy prices by Russian-related entities. “Most of those events were linked to rising interest rates and, behind, was the energy crisis. One can also say there is a connection to the rising energy prices and these turmoils,” he adds.

Löyttyniemi, a frequent commentator on financial, macroeconomic and geopolitical topics beyond pensions, had the foresight in July 2021 to predict the bursting of the ESG bubble. “I said if interest rates go up or if government policies change, then be aware that this climate change topic, or ESG, could be in some kind of hype cycle also,” he says. “And I couldn’t have been more right.”

He may have been right, but the ESG backlash does cause Löyttyniemi concern. “The big picture is not good, of course, because climate change is one of the biggest challenges that we are facing as a species,” he says.