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Real estate helps limit Ilmarinen losses

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FINLAND - Real estate investments helped limit losses by the Finnish pension fund Ilmarinen as it reported an overall loss of €4.34bn in 2008.

The pension insurance fund revealed the total value of premiums written in 2008 increased by 17.7% to €3.26bn, as the number of employees and self-employed persons insured with Ilmarinen grew by 65,000 to 533,000.

That said, the full results showed the total value of its investments fell from €23.66bn in 2007 to €20.87bn, as it posted an investment return of -17.7% following the continued financial crisis.

Over the year, Ilmarinen increased its allocation to bonds to 42%, alongside 12% in real estate, 13% in loan receivables, and 33% in equities, including private equity and hedge funds.

Figures showed bond investments produced an overall return of -4.2%, although within this money market instruments yielded a positive 4.6%, while the average hedge funds and private equity returns were -15.5% and -9.8% respectively.

Overall, the equity portfolio returned -36.9%, as the value of investments fell by €6.97bn following decreased share prices and divestment however the share of Finnish investments remained high with domestic shares accounting for 35.3% of the total investments, and for 40.2% of the listed equities.

The annual statements also showed the firm was in "active engagement processes" with nine different companies as part of its responsible ownership policy in 2008, and under the terms of the policy it confirmed the "securities of one company were sold".

And while other sectors suffered, it was Ilmarinen's real estate investments that produced the best performance in 2008 with an overall return of 6.8%, driven primarily by the 8.3% yield on directly-owned properties, as indirect real estate investments produced -5.2%, although the value of the real estate portfolio as a whole increased 15.9% to €2.5bn.

The only other positive investment contribution came from the firm's portfolio of loans, which more than doubled to €2.7bn in 2008 through increased lending to corporates, as the asset class returned 4.9%, the first sector to improve the yield in 2007.

Despite the investment performance of the firm, Harri Sailas, president and chief executive, claimed Ilmarinen's solvency capital is "on a solid basis", with a value of €2.67bn, or 14% of technical provisions, as although this is almost half the 32.5% reported in 2007 the solvency regulations were altered by the government at the end of 2008 to avoid the need for pension companies to sell off shares.

Sailas added: "The Finnish model for employee pensions has fared well. Its genius lies in the fact that a plunge in share prices does not affect individual pensions. The risk is delayed and distributed to thousands of companies and hundreds of thousands of employees through pension payments."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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