Finland’s Elo reported a 2.4% return on investments over the first nine months of this year, down from 4.9% in the same period in 2014, and increased its allocation to hedge funds and private equity.
In its interim report for January to September, the mutual pensions provider said falls in commodity prices and economic uncertainty in China were reflected in the equity markets, whose decline steepened in August.
Hanna Hiidenpalo, Elo’s director and CIO, said: “European equity markets have yielded better returns from the beginning of the year than US markets but declined from the spring highs more than the US.”
She said Elo had reduced its equity risk somewhat compared with the beginning of the year.
Elo was formed in January 2014 through the merger of Pension Fennia and LocalTapiola.
According to the interim report, the equities allocation dropped to 30.7% at the end of September from 35.3% at the same point a year before.
Elo said it also made a big reduction in the proportion of corporate bonds in its portfolio in the spring.
“Since the end of July, corporate bond margins have been growing in the energy and mining sectors, and also in other sectors,” Hiidenpalo said.
“The supply of new corporate bonds has decreased considerably as uncertainty grows.”
Exposure to hedge funds increased to 13.3% at the end of September from 10.3% 12 months before.
Private equity exposure, too, has grown, rising to 5% from 3.8%.
Hiidenpalo told IPE: “We are quite happy with our hedge fund allocation, at the moment around 15%.”
She said the shift to hedge funds had been an independent decision and not directly related to the reduction in equity or credit market exposure.
Seh said Elo was following its dedicated long-term investment strategy on hedge funds.
“It is true a market correction has happened, and this may provide some new investment opportunities in equity and credit markets going forward,” she added.
Equities overall returned 4.7% between January and September, down from 7.3% over the same period last year, while fixed income made a loss of 0.2% compared with a 3.4% return.
Real estate returned 5.8%, up from 4%.
Within equities, unlisted equities generated a return of 12.1%, up from 9.7%, while the return on private equity rose to 18.7% from 15.4%.
Hedge funds returned 2.2%, down from 5.3% a year earlier.
The solvency ratio declined slightly to 23.9% of technical provisions at the end of September from 26.4% at the same point a year before.
Elo’s total assets climbed to €20.1bn at the end of September from €19.4bn at the end of September 2014.