The Finnish State Pension Fund (VER) plans to double its exposure to risk premia investments, the €19.2bn fund’s CEO Timo Viherkenttä has said.
Currently 1% of VER’s portfolio is invested in risk premia funds and strategies, some of which have been developed in-house.
VER aimed to increase this exposure to 2-2.5% of its portfolio, Viherkenttä said.
“We have started growing this part of our portfolio at quite a rapid pace, but overall allocation is still very small,” he added.
VER’s allocation to risk premia involves systematic strategies across different asset classes.
Viherkenttä said: “They may be in the areas of equities, fixed income, currencies, or commodities, and the strategies can be based on, for example, carry, momentum, or volatility. The strategies may also be leveraged. We are not investing in typical risk parity funds.”
One of the benefits of risk premia investments was that they balanced VER’s other investments, Viherkenttä added, as their return was usually uncorrelated to the return of the broad portfolio.
“Transparency and lower costs of risk premia investments compared to hedge funds also make them an attractive investment choice,” he said.
VER has invested 3.5% of its portfolio in hedge funds, compared to an average allocation of 9.6% from other Finnish pension investors.
Viherkenttä added that the State Pension Fund was also interested in further geographical diversification of its real assets portfolio – 3.3% of the fund – which includes property funds and infrastructure.
”Our property portfolio is pretty Europe-focused meaning we can be looking at opportunities outside the continent,” Viherkenttä said.
Finland’s regulatory framework means VER can only invest a maximum of 12% of its portfolio outside of listed equity and fixed income.
“Thus, we need to fit in all possible other investments in this – from property to infrastructure, hedge funds and risk premium. Regulations do not leave much space for growing exposure in these investment tools,” Viherkenttä said.