FINLAND - Ilmarinen Mutual, the Finnish pension fund with €23.7bn in assets under management, is making the first tactical and minor strategic changes to its investment strategy as a result of the economic turmoil.

Timo Ritakallio, the head of Investments and deputy Chief Executive Officer (CEO) at Ilmarinen, told IPE: "The main reason is the market situation means we try to optimise our asset structure. I think many big investors are putting more focus on ‘back to basics' issues like equities and credit instruments.

"We have already started some changes and other changes depend on the market situation," he added.

The pension fund is turning its attention to fixed income and the growth in credit spreads because officials believe they will gain huge returns when spreads eventually normalise again.

Ilmarinen is, however, considering reducing its investments in hedge funds, which currently make up 3% of equities allocation.

"We will not increase that amount. We may even reduce this a little. Investments like hedge funds have been very problematic, in terms of liquidity, during this turbulent economic situation," he said.

Ilmarinen will concentrate on harnessing its internal hedge fund operations, created two years ago, instead of increasing its external hedge fund investments.

Ritakallio said the Finnish pension fund would not be increasing its bond holdings and had no immediate intention of changing its target returns, which are currently 4% after inflation.

In June 2008, Ilmarinen's portfolio consisted of 40% equities, 45% bonds, 10% real estate and 5% loans and yielded a total return of -4.9%.

Ritakallio maintained Ilmarinen still plans on increasing its private equity asset allocation from 2.3% to 3-4% over the next five years and its real estate asset allocation from 9% to 12% over the next three years, of which 60% will be invested in direct real estate and 40% in indirect real estate.

Ritakallio insisted, however, the pension fund would not be making any immediate changes to its real estate strategy, but said the pension fund was planning to increase its international property holdings by roughly 30-40% in the coming years.

"The real estate market will go down during the next two years and we can wait. In the coming 24 months we will hold that position," he said.

Ilamrinen has recently created a new position within its team and appointed Mikko Räsänen as head of private equity and non-listed lnvestments earlier in the month. Räsänen will assume his role in January 2009.

Ilmarinen Mutual Pension Insurance Company is the second-largest pension fund in Finland, with approximately 680,000 members.

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