FINLAND - Investment returns at the largest pension funds in Finland surged in the first quarter on the back of buoyant stock markets, more than making up for 2011's losses.

Keva, the local government and church pension fund, reported a 5.9% return on investments in the January to March period, while Valtion Eläkerahasto (VER), the state pension fund, achieved a return of 5.4%.

Among the major pension insurance companies, Ilmarinen posted a 5.1% return, Varma reported a 4.4% gain and Tapiola's return came in at 4.2% for the first quarter of 2012.

Merja Ailus, chief executive and managing director at Keva, said: "The first quarter of 2012 was reasonably good for investors in the capital markets, especially for those with portfolios laden with shares and other higher-risk investments."

Keva's 5.9% first-quarter return compares with a loss for the whole of 2011 of 1.7%.

In the first quarter, listed equities and equity funds returned 10.9%, fixed income investments returned 3.4% and property investments including real estate funds produced 1.1%.

Among smaller asset categories, the return on private equity was 1.3%, with hedge funds returning 3.1% and commodities ending the period with a 5.2% gain.

CIO Ari Huotari said the positive trend in capital markets seen at the end of last year had continued in the first quarter of 2012.

"The outlook in the capital markets at the beginning of the second quarter of 2012 has, however, turned more negative," he said.

"Equity markets have in general been under pressure, and the European equities markets in particular have been tried by the re-emerging concerns."

At VER, the return on fixed income investments was 2.7% while equities produced 10.8% and other investments returned 0.4%.

The overall return of 5.4% comes after an investment loss for the whole of 2011 of 2.3%.

Managing director Timo Löyttyniemi said stock markets had risen sharply at the start of the year, while interest rates had stayed low.

"After such a strong rise in the stock market, the main focus for the rest of the year will be the continuation of economic growth both in Europe and globally," he said.

At pension insurance giant Ilmarinen, equity investments returned 9.5% in the first quarter and fixed income produced a gain of 3.2%.

Deputy chief executive Timo Ritakallio said the recovery of share prices was a sign of growing confidence the economic downturn would be short-lived and showed people were becoming less worried about the sustainability of the financial system.

But he warned: "Insecurities still exist in terms of finding a conclusive solution for ending the European debt crisis."

Ilmarinen said its long-term real investment return from 1997 had risen at the turn of the year to 3.8% from 3.6%.

This compares with the 3.5% expected real return that is used to estimate the future development of earnings-related pension insurance contributions.

Ritakallio said it was highly possible that the long-term annual real return on investments would return to 4% in the future.

Meanwhile, Varma said its 4.4% investment return had increased the market value of investments to €33.9bn.

Equities generated the strongest return of all assets classes at 11.9%. Within this, domestic equities returned 18.8%.

Among other asset classes, fixed income produced 1%, property returned 1.5% and other investments gained 1.2%.

Varma's president and chief executive Matti Vuoria acknowledged the first quarter's positive market environment, but noted negative signs regarding the market outlook.

"After March, stock prices started to decline, and the debt problems in the euro-zone are still unresolved," he said.

In its interim results statement, Varma also said it had complied with the principles of good governance, giving up executive social premises and offloading properties used by staff for leisure, following public debate on the issue.

"Varma's ownership of leisure-time real estate has been discussed in the public arena," it said. "As part of the company's efforts to increase cost efficiency, Varma has given up its executive social premises and decreased the number of properties it owns that are intended for leisure-time use by the personnel."

Tapiola Pension's 4.2% Q1 return increased its total investments to €9.7bn from €9.5bn.

Equities returned 11.8%, including listed shares, which produced 13.7%.

Fixed income generated more than 2%, with corporate bonds returning nearly 5%.

But CIO Hanna Hiidenpalo warned of continuing structural risks.

"The market situation in the first quarter favoured risk-taking in both equity and fixed income investments, but a lot of structural risks still persist," she said.

"The uncertainty of the markets and shortened cycles are deterring Tapiola Pension from utilising its strong solvency for maximum risk taking."