The investment chief of Finnish pension insurer Veritas has said progress on measures to alleviate the COVID crisis, which financial markets are depending on, is going more slowly in Europe than in the US.
He also said that uncertainty about future effects of the action remain, and flagged a risk of overheating.
Veritas posted a 5.6% return on investments for 2020, having generated 6.8% in the fourth quarter alone. Total assets grew to €3.9bn at the end of 2020 from €3.3bn a year before, it reported.
Kari Vatanen, Veritas’ CIO, said: “The sentiment in the financial markets has been tentatively positive at the start of this year. The market is keeping a close eye particularly on the progress of vaccination efforts and stimulus measures.”
In the US, he said, stimulus measures were shifting from “helicopter money” to more precisely targeted “drone money” to distribute support more accurately to the right places.
“Things are progressing more slowly in Europe. One might say that, here, the stimulus package is arriving by snail mail,” he remarked.
“There is a risk of overheating”
Kari Vatanen, Veritas’ CIO
He said the biggest uncertainty factors now were that on the one hand, the pandemic situation could worsen, and on the other, that the successful vaccination programme could lead to a faster-than-expected recovery.
“There is a risk of overheating,” Vatanen warned.
Veritas said in its annual results statement that equities had been the strongest performing asset class last year, producing a 9.1% return, with real estate having made 6.8%, fixed-income investments returning 3.8% and the category of ‘other investments’ – which mainly consists of hedge funds – ending the year with a 2.6% loss.
“Already during the spring, we reduced the share of hedge funds in our investment portfolio, because we didn’t anticipate that they would bring diversification within this market environment,” Vatanen said.
Veritas, which is the smallest of Finland’s four mutual pension insurance companies, said it had held solvency at a good level throughout the various phases of the coronavirus crisis, and that the solvency ratio had increased during the final quarter to end the year at 128.8%, up from 127.2% at the end of 2019.
Varma’s 2020 return reaches positive territory in Q4
Finland’s second largest pension insurer reported a full-year return of just 2.8%, weaker than the 7.1% 2020 return posted last week by its main rival Ilmarinen, with solvency dipping only slightly despite the pandemic crisis.
The earnings-related pension provider said in its annual report that quarterly investment returns had only come back into positive territory in the final three-month period - when the return was 5.6%.
Varma’s CIO Reima Rytsölä said: “Following the plunge in share prices in the spring, few people believed that investment returns would be back in positive territory at year-end.”
The best returns in 2020 had been generated by unlisted equities, which produced a 8.6% return, the pensions firm said, with private equity producing 7.8% and public-sector bonds ending the year with a 6.1% financial gain.
The category of fixed-income investments returned 1.9% and real estate produced 2.0%, it reported.
Hedge funds made a 1.0% loss, Varma reported.
“The rollout of the global vaccine programme would have to be swift for the investment market’s valuation levels to be in line with the real economy outlook”
Varma CIO Reima Rytsölä
The firm said solvency had remained strong throughout the year and stood at 129.3% at the end of December, down from 130.8% a year before.
Varma’s total investments rose to €50.2bn at the end of 2020 from €48.7bn a year before, according to the annual report.
Rytsölä said that so far, the investment market had not reacted to the delays in vaccine deliveries or the news on the virus variants.
“The rollout of the global vaccine programme would have to be swift for the investment market’s valuation levels to be in line with the real economy outlook,” he said.
Varma’s results complete the 2020 returns reporting round for the Finnish mutual pension insurers.
Ilmarinen – the largest of the mutual pension insurance companies in the country’s private sector earnings-related pension system – posted its 2020 results last week, with a 7.1% total return on investment, its solvency ratio rising to 130.2%, and total assets rising to €53.3bn from €50.5bn at the end of 2019.
Elo, the third largest of the pension insurers, ran into trouble with the Finnish FSA last year after its solvency fell below the regulatory floor for one day in March, and the watchdog subsequently sent an agent in to keep an eye on management.