FINLAND - Keva, the €22bn local government pension institution in Finland, has appointed Altis Investment Management to assist with external asset manager analysis and monitoring.
Timo Viherkenttä, deputy CEO of Keva, the local authority pension fund, said the service Altis is providing will be strengthening the fund's internal manager selection and monitoring process. He pointed out that Keva has not outsourced its manager selection or moved towards fiduciary management. "Manager-selection remains firmly in our own hands," he added.
Altis is a Switzerland-based independent fiduciary manager, with clients ranging from large institutions to family offices. The company believes it is vital to constantly analyse stock picks and managers' monthly transactions in order to understand skill and weak points. They argue that this is a more reliable gauge of skill versus luck compared to performance.
In the first half of the year Keva's performance bounced back from an abysmal 2008, returning 6.5% following a continued rally from equity markets. Last year it had its worst ever results, like many other institutional investors, with returns down 20.6%.
The cumulative real return since inception (1988) at Keva to the end of 2008 was 2.0% annually. The market value of investments dropped from the end of 2007 €24.3bn to some €20bn. Despite the poor results last year, Keva is in good health as contributions grew by 6%.
Recent research published by Keva shows that a third of local authority employees will retire over the next 10 years, prompting questions whether Keva's funding levels and return expectations of 4% annually is sufficient for the future.
Viherkenttä said the results of the research do not come as a surprise as this has been known and taken into calculations about Keva's funding level and return expectations, noting that funding levels are sound at current levels.
Funding levels will turn negative in ten years time, which will affect investments because from then on some of the returns will have to be used to pay pensions, he added.
He also said that should the funding levels tighten further in the future it would not be realistic to expect the shortfall to come from investment returns only. "Then we would have to consider increasing payment increases," Viherkenttä said.
Apart from the recent appointment of Altis, Keva is also looking for a new CEO. Viherkenttä is one of two internal candidates with a total of 20 applicants for the position. (See earlier IPE article: Etera top man aims for Keva CEO role)