Second-quarter returns of 1.8% for VER, Finland’s state pension fund, have brought its half-yearly results into positive territory – 0.9% – after first-quarter returns of -0.8%, according to preliminary figures.
This takes VER’s annualised rate of return over the five years to the end of June to 5.8%, and 4.6% per annum over the 10 years to the same date.
At 30 June, VER’s portfolio stood at €17.9bn, compared with €17.6bn at 31 March and €17.9bn at the end of 2015.
The biggest component in the portfolio – liquid fixed income – returned 3.7% over the six months, compared with 0.2% for calendar 2015.
Liquid fixed income accounted for 46.3% of VER’s portfolio as at the end of June 2016.
A further 1.2% is in other fixed income investments, including private credit, which returned 1% over the six months.
The other main asset class, listed equities (41% allocation), performed substantially under its 2015 level, making -2.4% over the first half of 2016, compared with 10.3% for calendar 2015.
But private equity – the standout performer of 2015, with an 18.6% return – maintained positive results, with a 4.5% gain over the first half of 2016.
Private equity forms part of a 2.2% ‘other equities’ allocation.
Risk limits set by the Ministry of Finance provide that fixed income investments must account for at least 35% of VER’s investment portfolio, while equity investments may not exceed 55%.
Timo Viherkenttä, chief executive at VER, said: “The return on investments was barely in the black, mainly due to the fixed income instruments. Investments in emerging markets, in particular, generated healthy returns.”
He added: “Stock markets had not fully recovered by June from the sharp fall experienced in early winter, as well as the new blow delivered by the EU referendum in the UK.
“Subsequently, share prices have exceeded the levels at the beginning of the year in many markets.”
He warned that historically low interest rates and US stock prices at record highs were reason to prepare for modest returns, as well as setbacks, in the future.
In June, VER’s board of directors adopted a strategy that provides a more detailed description of the scheme’s objectives and outlines the policies designed to achieve them.
By law, VER must be grown until its assets cover 25% of the Finnish state’s pension liabilities.
The objective is now to achieve this by the end of 2033.
The funding ratio in 2015 was 19%.
The target return needed to reach the newly established objective will be applied for the first time in preparing the 2017 investment plan.