Real estate holdings boosted investment returns for Norway’s Kommunal Landspensjonskasse (KLP) in the first half but, overall, the firm described its results as “moderate”.

Between January and June, KLP, Norway’s main municipal pensions provider, posted a value-adjusted return on customer funds of 1.3% and a book return of 2.3%.

Sverre Thornes, KLP’s chief executive said: “Reserves earned previously have secured a good result for customers in a half year of moderate returns.”

He added: “We are very well equipped to meet just such weaker periods without our customers noticing this.”

Property values in KLP’s main portfolio – the collective portfolio – increased by NOK62m (€6.4m) between January and June, and real estate was the biggest contributor to the firm’s overall return in the period.

Collective portfolio assets expanded to NOK503bn by the end of June, from NOK476bn at the same point last year. It is the country’s biggest institutional fund after the NOK8.7trn Government Pension Fund Global.

In the second quarter, real estate investments generated 4.3% for KLP, and amounted to 13% of the collective portfolio at the end of June.

Bonds held to maturity produced a 1.8% return, but short-term bonds made a 1.2% loss. Equities, meanwhile, returned 1.1%.

Commenting on its position in the Norwegian pensions market, KLP said in its interim report that the country’s ongoing municipal and regional reform was expected to have “a moderate impact” on the company’s customer base.

Under the reform, several municipalities are merging with neighbours to form larger, potentially more efficient local authorities.

If these municipalities include one authority that runs its own pension fund independent of KLP, the other merging municipalities may opt to join, taking their business away from KLP.

KLP said 14 municipalities were affected by this. The New Asker municipality has decided to have its own pension fund from 1 January 2020, KLP said in the report, but it noted that none of the other new municipalities had yet decided how they would organise their pension schemes.