Finland’s biggest pension fund Keva produced a clearly higher annual investment return than the country’s other major pension funds, according to their annual reports – while all suffered from a weak domestic equities market in 2023 and losses on strained property investments.

Keva, which covers municipal employees and others, reported a 6.8% return with the market value of its total portfolio ending 2023 worth €65.7bn, the fund reported on Thursday.

Meanwhile in results posted this morning by the big two Finnish pension insurance companies, Varma beat Ilmarinen with a 6.0% return – higher than the latter’s 5.8%.

The two smaller pension insurers within the earnings-related pension system, Elo and Veritas, produced returns of 6.0% and 5.7%, in results also released today.

Ari Huotari, Keva’s chief investment officer, said the fund’s “good investment result” was largely due to the development that took place in the latter half of last year.

“At the end of the year, there was optimism in the market about the decline in inflation coupled with milder-than-expected economic effects – and optimism about interest rate cuts by central banks,” he said.

“On the other hand, real estate investments were marked down across the board last year,” he said.

Keva achieved its strongest 2023 returns on listed shares, with a 10.1% gain last year, with fixed income generating 9.0% and hedge funds 6.6%. The return on real estate was -6.1%, though.

In September last year, Keva announced it would step up the risk level significantly in its investment portfolio “in the near future” after a board decision to do so.

IPE has contacted Keva to ask whether the portfolio’s equities weighting had in fact been increased before the end of 2023.

At Varma, president and chief executive officer Risto Murto said his institution’s returns last year were mainly generated outside Finland, with the domestic equity markets having performed poorly.

“Finland’s economy and equity markets performed feebly. The higher interest rates clearly put the brakes on the economy,” he said.

Finland’s Helsinki 25 index declined by nearly 12% last year, according to data from website Trading Economics.

Ilmarinen also commented on 2023 having been a difficult year for Finnish equities, and after a 13.5% loss on property in the year, he said the weak return on Ilmarinen’s real estate portfolio in particular had “reduced the otherwise excellent return on investments”.

While Ilmarinen produced a 10.1% return on its equities, which made up 46% of its total assets at the end of 2023, Elo’s shares returned 8.6% over the year.

The now €30bn pension insurer Elo said it had increased its allocation to listed equities towards the end of the year to 30.8% by year-end.

Elo made a 2.4% loss on property last year, and said the uncertain economic outlook and changes in the financial markets had kept real estate trade volumes low – and the rise in yield requirements had continued.

“The general increase in yield requirements was also reflected in the values of Elo’s real estate investments, and in 2023, a total of €141.2m in impairment was recognised in the values of direct real estate investments,” it said today.

Real estate made up €2.58bn of Elo’s overall portfolio at the end of the year.

Looking ahead, Kari Vatanen, CIO of Veritas, said the beginning of 2024 remained challenging for the domestic economy.

“Purchasing power, however, is increasing and, as we approach summer, we can already expect a gradual downward trend in interest rates.

“This will likely stimulate the real estate market and the economy in general,” he said.

Read the digital edition of IPE’s latest magazine