FINLAND - Private equity returns of 42.4% helped Pension Fennia increase the value of its assets by more than €400m to €6.1bn at the end of 2007.
The pension fund's final results from 2007 reveal overall investment returns were almost halved to 4% from 8.2% in 2006, although it claimed the average return on investment between 2003-2007 has been 7.6%.
Pension Fennia said the best returns on equity investments came from Finnish stocks and developing markets, although listed equities returned 3.7%, down from 15.8% in 2006. In contrast, the figures showed unlisted equities returned 24.4%, while the yield from private equity was 42.4%, up from 26.8% the previous year.
In addition, the pension fund noted because investment expectations for 2007 were low, "assets were decentralised more than in the previous year" as the allocation to hedge funds increased by 45% from 8.9% in 2006 to 13% in 2007.
Despite this increase, hedge fund investments returned just 3.8%, down from 6.4% in 2006, while real estate returns also fell from 15% the previous year to just 11.1% in 2007, although Lasse Heiniö, managing director of Pension Fennia, pointed out the investments of occupational pension schemes are 'long-term, profitable and securing" and argued "yearly variation of the return level is part of the nature of the operations".
However, while the annual returns on bond investments, including derivatives and fixed-income funds, dropped from 2% to 0.5%, the return on the company's money market portfolio increased from 2.9% to 4.2%, and the yield on invested capital in corporate loans also rose from 4.2% to 4.3%.
The final figures also showed Pension Fennia increased its overall share of the pension market from 10.2% to 10.6%, which resulted in premium income of €968m, of which €857.7m came from members insured under the Employees' Pension Act (TyEL) that came into force at the beginning of 2005.
As a result, the number of employees insured under TyEL increased by 20% to 162,940, from 135,450, while the number of YEL policies for self-employed members increased by 6% to 31,610.
Pension Fennia's solvency margin, which indicates the solvency and risk-bearing capacity of the company, was 1.7 times the solvency limit in 2007 with a margin of €1.16bn, or 22.7% of technical provisions, which is slightly below the 2006 level of 25.7%.
That said, the annual report showed the company handled 13,200 pension applications in the last year, of which 7,000 were new, and at the end of 2007 Pension Fennia had responsibility for 77,600 pensioners and had paid out €675m in pensions to 44 different countries.
Heiniö said: "In investment operations we fell behind the returns of 2006. Considering the challenging situation on the investment market, Pension Fennia's result of investment operations can be said to be satisfactory. Especially as the turbulence and instability on the equities market in the last quarter was also reflected on investment income."
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