FINLAND - The Local Government Pensions Institution (LGPI) has reported an overall investment return in 2008 of -20%, the worst figure in the institution's history.

In its preliminary figures, LGPI blamed the poor returns on "an unusually difficult" year for investment and suggested in "many ways it was the worst year in the history of developed capital markets".

The organisation, which is responsible for the pensions of municipal employees in Finland, pointed out in addition to "plummeting capital values, the market was adversely affected by a general decrease in liquidity. At the same time prospects for the real economy deteriorated rapidly".

LGPI highlighted its average investment return over the five years between 2003-2007 was around 9% per year, so although in 2007 this decreased to 6% it is significantly higher than the -20% reported for 2008.

In its preliminary figures, LGPI also reported only fixed income and real estate achieved a positive performance in 2008, while the lowest result was recorded by equity investmentswhich generated a negative return of 40%.

It admitted the size of its investment loss was "principally the result of the fact that in accordance with its long-term investment strategy LGPI has a quite high equity weighting in its investment portfolio, 50% in a neutral allocation".

The remainder of its assets are split to allocate 40% to fixed income, 9% to real estate, 4% to private equity and 0.5% each in hedge funds and commodities.

That said, LGPI revealed the 2008 equity allocation "was allowed to sink well below the predetermined allocation limits" and at the end of the year investment in equities was at less than 40%.

The latest figures meanwhile showed the market value of the pension fund's assets dropped almost €300m between June and December 2008, from €22.9bn to €20bn, although LGPI revealed income from pension contributions continued to grow in 2008 to total €3.9bn.

Markku Kauppinen, managing director and chief executive of LGPI, claimed despite the fall in market value of investments "the financial position of the municipal pension scheme is very strong".

As a result the fund has been able to "slightly reduce" the average pension contribution for local government employees in both 2008 and 2009,said Kauppinen said, who also claimed the starting point for investments by the LGPI will be good going forward as "the valuation levels on capital markets are much more favourable for new investments than before".

The LGPI will release its full financial statements in March 2009, however the preliminary figures showed the fund insured around 425,000 people at the end of the year and paid out €2.9bn in pension benefits in 2008 to around 320,000 pensioners.

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