Pension companies double hedge fund investment
FINLAND - Pension insurance companies are moving to hedge funds for better returns as bond markets fail to impress, statistics reveal.
Just over 6% of Finnish pension assets are currently placed in hedge funds with investments reaching €7.5bn at end-September, up from €3.6bn at year-end 2006.
According to latest data on members of the Finnish Pension Alliance Tela - representing pension funds and pension insurance companies with combined assets of €124.3bn - hedge fund investment has increased more than seven-fold since 2004 when investment stood at €800m.
"It is a fast growing trend but mostly limited to large pension insurers," Matti Leppälä, director for international and legal affairs at Tela, explained to IPE.
"They are re-allocating bond investments in order to achieve better returns," said Leppälä, adding "a great variety" of hedge funds was used with funds looking both at direct investments and fund of hedge funds.
Combined, all Finnish pension insurance companies held €5.1bn in hedge funds, amounting to 6.7% of their assets.
The largest exposure to this asset class was made by the biggest company in the sector Varma, as it had 12.8% of its €6.2bn in assets in hedge funds at the end of June.
The much smaller insurer Fennia with €2.6bn in assets had 12.5% invested in the asset class. According to the figures the other pension companies had a much smaller exposure with Etera holding 5.1% and Ilmarinen 3%.
Among public sector pension schemes, the local government pension institute - which has the monopoly on local authority retirement schemes - held 0.7% of its €23bn in hedge funds.
Private sector pension schemes have a very low exposure to hedge funds.
Tela statistics for the third quarter also reveal for the first time equities are the largest asset class among pension institutions with 48.1% of total assets invested in this asset class.
Equity exposure is no longer capped since the beginning of this year, but can be adjusted according to various solvency criteria and the market situation.