Investments returned 3.7% for the State Pension Fund of Finland (Valtion Eläkerahasto, VER) in the first half of this year, in nominal terms, and 0.8% in real terms, according to the fund’s interim report, with both listed and unlisted equities leading gains.

The Helsinki-based buffer fund for central government staff pensions reported a 6.2% return for listed equities between January and June, and a 4.7% gain for unlisted equities – its two top performing asset classes in the period.

Regarding listed equities, the Finnish pension fund said the US equity market had been the best performing component in the portfolio during the first six months of the year.

“Driven by technology stocks, valuation levels have also risen sharply, especially in the US,” VER said, but warned: “The following months will show how strong the basis for the boom in technology stock really is”.

On private equity – which returned 2.2% for VER in the period – the pension fund said despite concerns about falling valuation levels of at the beginning of this year, the positive performance of equity markets had continued to support the value of portfolio companies.

“Although the transaction market has clearly slowed down, some highly successful exits were accomplished by fund managers in the spring,” it said.

Listed fixed income assets generated a 2.7% return, while unlisted real estate funds suffered a -1.1% loss, but infrastructure funds made a 3.1% gain over the six months, the report showed.

VER said the best returns in liquid fixed income investments had been produced by higher-risk instruments, such as emerging market debt denominated in local currencies and lower-rated corporate bonds.

Infrastructure investments had continued to perform fairly well, it said, but regarding real estate, the fund said the transaction market remained dormant and the increase in yield requirements due to rising interest rates had depressed property values in almost all sectors.

Commenting on the investment environment overall, VER said geopolitical tensions were persisting “without any prospects for a solution to Russia’s aggression and a way out of the war”.

The conflict had spurred interest in the defence industry with military spending increasing in the East and West, it said.

Looking ahead, the fund said: “Geopolitics will continue to play a role in assessing the attractiveness of individual economies as investment targets”.

The fund’s total assets rose to €22.1bn by the end of June after closing 2022 at €21.6bn, with VER having contributed €1.06m to the state budget between January and June this year.

VER said that from the state’s point of view, its return on investments could be compared to the cost of net government debt, because the funds accumulated in preparation for future pension expenditure could be deemed to reduce such debt.

Over the past 10 years, the fund said its average annual rate of return had beaten the cost of net government debt by 4.4 percentage points.

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