Finnish pension providers see 'outstanding' equity results due to ECB
Finnish pension providers have seen their first-quarter returns boosted by the European Central Bank’s (ECB) monetary policy, with one claiming “outstanding” results as a consequence of the quantitative easing programme.
Pensions insurer Varma reported a 5.3% return on investments in the first three months of this year, which increased the provider’s solvency level.
The return was up from the 2% posted in the same period last year.
Risto Murto, president and chief executive at Varma, said: “For pension investors, this year started out exceptionally strong.”
Solvency capital increased to a level of 38.1% of technical provisions, from 32.9% at the end of March 2014, Varma said in its interim report.
The company said its return on investments was lifted in particular by the strong increase in share prices as well as the strengthening dollar, since a proportion of its currency position had been unhedged.
All asset classes posted positive returns, with equities making the highest at 9.6%, compared with 2.6% in the same period last year.
Fixed income investments returned 2%, up from 1.5%, due to the decline in interest rates.
‘Other’ investments, including hedge funds, produced 4.7% in the quarter, up from 1.9%, while real estate returned 2%, after 2.1% the year before.
Murto said increasing the long-term growth potential of the Finnish economy was a big challenge.
“The zero-rate environment, low level of investments and poor development of productivity all paint a bleak picture,” he said, adding that there was a shortage of growth and innovation.
Elo said it also returned 5.3% in the first three months of the year, aided by a 13.2% return from stocks and rising as high as 20.1% for individual listed companies in Finland.
The €20.9bn provider also credited the weakening euro with some of the “outstanding” gains, but CIO Hanna Hiidenpalo struck a cautious note.
“Equity market values are to some extent already very high,” she said. “It seems the trends in the real economy and the investment market are diverging.”
Elo said fixed income returns, at 1.1%, were higher than expected in the current low and negative yield environment across Europe.
Across its entire portfolio, only listed equities managed double-digit returns of 14.8%.
The second-best result was achieved by its private equity portfolio, with 6.4%.
Etera, which saw assets under management increase to €6bn on back of 4% returns, praised the success of its diversified portfolio.
Stefan Björkman, its managing director, argued that, in light of its asset allocation, the return over the first quarter was good.
“A considerable proportion of our investments are in real estate and private equity and debt, which do not react to quick market moves,” he noted.
In line with other providers, Etera saw the best returns stem from its 11.5% allocation to listed equities.
The 8.6% overall return in equities, stemming from 2.8% in private equity and 4.6% in unlisted equity, was also well above the results achieved by its bond, real estate and ‘other’ investments.
Ilmarinen achieved the best overall return of the four providers, at 7.1%, as listed equities returned 17.7% and both fixed income and direct real estate 1.2%.
Chief executive Timo Ritakallio said he accepted that the ECB’s intervention had given equity markets a “boost”, but the €37bn mutual’s new CIO Mikko Mursula warned of “strong fluctuations” to the price of listed equity.
“With interest rates at zero, investors are still heading towards the equity markets, although quite a long and severe rise in share prices lies behind us,” Mursula said.