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Returns at Finnish pension funds dragged down by struggling equity markets

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FINLAND - Several of Finland's largest pension schemes have seen negative returns in 2011, following a volatile year in the local equity market that saw Tapiola Pension's listed holdings fall by 17.5%.

Valtion Eläkerahasto (VER), the pension fund for state employees, and Keva, the local authority scheme, also saw double-digit declines for their listed equity holdings.

Tapiola noted that equity declines were "particularly sharp" in Finland and other Nordic countries, where it sought the majority of its exposure.

However, across other asset classes - such as fixed income, unlisted equity, property and hedge funds - returns were mostly positive, allowing Tapiola, VER and Keva to return -3.1%, -2.3% and -1.7% overall, respectively.

Tapiola noted that its non-listed equity returned 18%, with private equity and property also growing by 14% and 6% year on year.

Keva enjoyed similar success with its private equity funds, returning nearly 14%, while its real estate holdings returned 6.8%. However, hedge funds fell by 0.5%.

Keva's chief investment officer Ari Huotari said that, despite initial optimism in the market last year, concerns reappeared and led to "significant" market fluctuations.

"In all likelihood, the markets will soon reawaken to the many unresolved issues, say, in the euro area," he said.

"So it looks like we are facing another year where investors will have to act with particular caution."

Timo Löyttyniemi, managing director at the State Pension Fund, meanwhile insisted that his scheme's 4.1% return on fixed income was good in light of the euro-zone debt crisis.

He also attributed VER's negative return of 12.3% in listed equities - compared with a 23.6% return in 2010 - to the declining economic outlook.

"However," he added, "towards the end of the year, the situation in the financial sector seemed to be stabilising."

Hanna Hiidenpalo, investment director at Tapiola Pension, agreed, saying that investment income had improved "significantly" after September.

Assets under management at VER fell by €200m to €13.7bn at the end of December last year, while Keva's AUM increased to €29.6bn.

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