FINLAND - Investment returns in Finland's pension funds have fallen sharply in the nine months to September, with stock market volatility leading to declines of nearly 22% in equity portfolios.

Valtion Eläkerahasto (VER) - used to assist payment of the state pension - saw its quoted equity investments fall by 19.3%, while Keva, responsible for pensions of state employees, reported a 17.4% decline on its equity holdings.

Meanwhile, the €31.2bn Varma scheme reported a loss of 4.2% in the first nine months of the year, with chief executive Matti Vuoria stressing that its solvency ratio had fared well in challenging market environment.

"Active control over the risk level of the investment portfolio and broad diversification of assets have been very significant in that respect," he added.

In contrast to a number of other pension funds in Finland, Varma reported negative returns only for its listed equity portfolio, with the 21.6% decline offset by positive returns in private equity (11.5%), unlisted equity (6.9%), real estate (4.6%) and hedge funds (2.6%).

Equities were also one of the two asset classes offering up negative returns at the €9bn Tapiola Pension, with listed equities declining by 19.8%, while unspecified other investments - accounting for 0.3% of the overall portfolio - fell by nearly 16%.

Managing director Satu Huber said its "strong" solvency position would be able to offset the negative return of 4.8% seen in the year-to-date figures, while Hanna Hiidenpalo, the fund's investment director, said it had taken measures to adjust its investment strategy.

"A major change in allocation between equities and fixed income investments was carried out in the summer," Hiidenpalo said.

"Equity and business risks were reduced, and we responded quickly to the weakening of expectations in investment markets by significantly reducing the total risk of the investment portfolio. By early August, we had already implemented many of these measures."

The scheme reported high double-digit returns of 12.4% and 18.2% in its private equity and unlisted equity holdings, while real estate reported the second-strongest returns of 4.4%.

The pattern of negative returns in two asset classes was also seen at VER, with the 19.3% decline in listed equities resulting in a loss of 5.9%, despite 10% growth in private equity and a further 2.2% in real estate.

The fund saw its total assets under management decline by €700m to €13.2bn compared with the end of December.

Fellow government pension scheme Keva also saw losses of 5.9%, citing strong declines in listed equities and a 9% fall in commodities.

However, Ari Huotari, investment director at the €27.9bn fund, was positive about prospects overall, saying on Tuesday that there had been a "cautious willingness" to increase portfolio risk.

"During the past year, all investors, Keva included, have had to constantly analyse their risk levels," he said.

"Equities and other risk-bearing investments performed reasonably well in October. Following the latest euro-area meetings, there has even been a bit of an equity rally."