Finnish funds fall an average 14%
FINLAND - The Finnish Pension Alliance TELA has revealed Finnish pension funds decreased in value by 14% last year as a result of their high exposure to equities.
TELA's members are Finnish pension institutions administering statutory earnings-related pensions and look after €105.1bn in assets under management, but the latest figures show pension funds had declined in value by around €17bn in 2008 because of turbulent equity markets.
Esa Swanljung, managing director of TELA, said: "Pension funds have decreased remarkably during the past year. After a growth period of more than four years, 2008 was very dark due to the financial and economic crisis."
Equity investments fell more than 40% to €22bn down to €34.4bn, and equity investments represented less than 33% of the total asset allocation by the end of the year compared to 2007, when they made up more than 46% of all investments.
Public sector pension funds had the highest allocation to equities, with less than 40%, followed by pension insurance companies with around 30% and industry-wide pension funds with an average allocation of 29%.
The number of hedge fund investments also decreased in value and came to €5.2bn, representing 5% of the total asset allocation and 15% of all equity investments.
Bond investment weightings in portfolios increased by 5% to 41% and had a total value of €43.2bn while real estate investments increased drastically as a weighting of a fund's assets, from €11.2bn last year to €13bn and made up 12.5% of the total investments.
Matti Leppälä, director of the Finnish Pension Alliance, said new temporary solvency laws should help pension funds invest in more alternative, albeit risky assets.
"The main issue over the last few months has been the solvency question because our solvency framework was forcing our pension institutions to use less risky assets and thus jeopardise future returns," said Leppälä.
"But we were able to change the legislation with a temporary rule enforced until the end of next year, and that has tremendously helped the solvency situation of the private pension sector institutions as they are still able to keep much more risky assets than they otherwise would be able to do," he added.
Domestic investments, which represent €38bn and make up 36% of all investments, have risen in terms of allocation by 7% in the last two years, so may have contributed to pension funds' loss, according to TELA.
"[Pension funds] still have a lot of investments in Finnish markets and the Finnish market did not do as well as the world market. It's a more volatile market, so this also had an effect on returns," said Leppälä.
Allocations to other European investments also made up 32% of holdings while asset allocation across the rest of the world dropped from 56.8% of pension funds' total asset allocation in 2007 to 32% last year
Commenting on whether Finnish pension funds are likely to alter their investment strategy, Leppälä said: "I don't think there will be any drastic changes. They might diminish their equity exposure to some extent."
Members of the Finnish Pension Alliance TELA include, among others, the Bank of Finland Pension Fund, the Seamen's Pension Fund, Local Government Pensions Institution and the State Pension Fund (VER).
TELA's main functions include lobbying for employee pension institutions and providing information on pensions and their policies.
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