Ilmarinen boosted its exposure to China and reduced holdings in emerging markets and Japan last year, returning close to 7% over the course 2014.
The increased exposure to China follows AP2’s intention to double the size of its equity mandate, after its existing portfolio returned 59% last year.
The €34.2bn Finnish pensions mutual also said an increase in pensioners, stemming from baby-boomers working lives’ coming to an end, had seen it become cashflow negative.
It reported a shortfall of €180m, despite contributions of €4.4bn last year.
Timo Ritakallio, the pension provider’s new chief executive, noted that the shortfall would need to be addressed by investment returns in future, rather than increased contributions.
While Ilmarinen’s long-term investment strategy foresees a reduction in fixed income in favour of both infrastructure and real estate, the fund nevertheless saw its bond and money market holdings increase to nearly 40% of assets, up by 1.1 percentage point year on year.
The asset class returned 2.4% overall, with money market instrument returns at zero for the second year running.
Notably, the provider saw its corporate credit portfolio decline by one-sixth over the course of 2014, citing less interest by companies to take on loans funded by pension providers due to Finland’s struggling economy.
Having issued nearly €100m in new loans in 2013, the amount fell to €55.5m last year, while the overall loan portfolio shrank in size from close to €1.8bn to €1.5bn, a 17.6% drop.
Ilmarinen also continued to reduce its exposure to domestic equity, with Finnish shares only accounting for 30.2% of all listed shares, a 3.4 percentage point drop.
Its exposure to Japanese and emerging market stocks also reduced.
However, its holdings in Chinese equity increased markedly compared with 2013, exceeding 5% of the overall equity portfolio, while exposure to European equities increased, approaching 40% of equity holdings.
The rebalancing saw equities fall from being the best-returning overall asset class, gaining 10.9% last year compared with 20.9% in 2013.
The return nevertheless compared favourably with the 4.9% growth of its property portfolio and the 6.8% gains from absolute return funds, which account for 40% of Ilmarinen’s €1.3bn portfolio of ‘other’ investments.
The holdings, which also include commodities, returned 17.7%.
Ritakallio, who was announced as president and chief executive last year, said the provider’s diversified investment strategy had “proven to be extremely successful”.
Ilmarinen previously announced that FIM Group chief executive Mikko Mursula would succeed Ritakallio as CIO.