Finland’s State Pension Fund (Valtion Eläkerahasto or VER) reported a marked acceleration in year-to-date investment returns between July and September, helped by a surprisingly high return on its fixed income investments over the period.
Reporting interim financial figures, VER said investments returned 4.4% in the first nine months of the year, with the return in the third quarter alone at 3.5%.
Timo Viherkenttä, VER’s chief executive, said: “What in particular exceeded expectations was the 5% return on fixed income instruments as interest rates kept falling and risk premiums decreasing.”
He described the pension fund’s overall return as sound and said it had been generated more or less equally by all asset classes.
“The investments in the emerging markets, in particular, generated healthy returns, both on equities and fixed income portfolios,” Viherkenttä said.
Liquid fixed income instruments generated a return of 4.9%, and listed equities produced 4.1% during the third quarter.
VER said its average rate of return for the past five years was 7.7%, and 4.6% for the past 10 years.
Total assets rose to a market value of €18.5bn at the end of September, up from €17.9bn at the end of December last year.
Fixed income instruments accounted for 48.1% of the fund’s overall assets, and equities for 42%.
Viherkenttä said the third quarter had been characterised by a strong recovery in equity markets as the uncertainty created by the Brexit vote was quickly replaced by new optimism.
“Investors are focusing on issues related to political developments both in the US and Europe – along with ever-present central bank speculations,” he said.
Between January and September, VER’s premium income of €1.14bn was outweighed by the €1.34bn that was transferred to the government budget.
VER is required to contribute 40% of the state’s total pension spending to the government’s annual budget, with the amounts to be transferred increasing continuously in absolute terms with the growth in pension spending.