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Ilmarinen sees long-term increase in equity weighting

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Finnish mutual pension insurer Ilmarinen saw the value of its investments grow to €34.1bn by the end of September, and indicated it would gradually raise its equity weighting as a result of new freedom granted in the country’s recently agreed pensions reform.

Deputy chief executive and chief investment officer Timo Ritakallio said: “The pension agreement will improve the financial markets’ confidence in Finland’s public finances, even though its credit rating fell.”

The reform, agreed by government, and employers’ and workers’ representatives in September, would also improve the long-term outlook for the Finnish economy, he said.

Changes to solvency regulations for pension companies that were included in the reform would make it possible to increase an investment portfolio’s equity weight to 60%, Ilmarinen said.

Ritakallio, who is to become the company’s chief executive next May, said these changes would affect Ilmarinen’s long-term strategy.

“We do not expect sudden changes to the equity weight, however,” he said.

In its interim report, Ilmarinen said equities and shares made up 41.1% of total investments at the end of September, while fixed income accounted for 43.1% and property has a 10.8% weight.

The total return on the company’s investment portfolio for January to September 2014 was 5.7% or €1.8bn, down from 6.5% or €1.9bn in the same period last year, according to the report.

The market value of investment assets rose to €34.1bn from €31.5bn. 

“Equities and shares did particularly well but as a result of declining interest rates, we also brought home good returns from our fixed income investments,” Ritakallio commented.

The return on listed equity investments slipped to 8.8% from 14.1% in the same period a year earlier, while fixed income returns were little changed at 3.1% after 3.2% and direct real estate produced 4.0%, up from 3.3%, according to the unaudited figures.

Ritakallio said the consequences of the Ukraine crisis had started to have an obvious effect on the economic situation in Russia and Europe, with the economic outlook for both areas having weakened.

Though Ilmarinen had few Russian investments, the indirect impact of the Ukraine situation could also be felt in Ilmarinen’s investment portfolio, the insurer said.

“The drawing out of the crisis and the economic sanctions are further weakening Russia’s economy and also indirectly affecting the profit outlook of many of the listed companies owned by Ilmarinen,” Ritakallio said.

The third quarter figures show Ilmarinen’s asset allocation shift within equities towards European shares and away from the domestic market has continued.

At the end of September, European assets made up around 41% of the listed equities portfolio and Finnish assets accounted for around 25%, compared to around 26% and 40% respectively at the end of 2011.

Ritakallio said the Finnish economy was not expected to improve for the time being, but he predicted that the weakening of the euro would make Finnish exporters more competitive in the long term.

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