Finland’s State Pension Fund Valtion Eläkerahasto (VER) has reported an investment return of just 1.1% over the year to the end of September, having made a 4.2% loss in the third quarter alone.
According to its interim report, falling share prices, particularly in August, were to blame for the performance.
Timo Viherkenttä, chief executive at the pension fund, said: “The overall fall in share prices following the strong market performance during the first few months of the year continued with twists and turns up to the end of September.
“The plunge was deepest in August when fears about stalling economic growth in China caused investors to flee the emerging markets.”
In the first quarter of this year, VER posted a 7.5% return, but this gave way to a loss of 1.8% in the second quarter.
In the nine months to the end of September, VER’s listed equity investments generated a 2% return overall, down from 9.8% in the same period last year.
Liquid fixed income investments suffered a 0.3% loss.
Fixed income overall, including private credit funds, makes up more than half of VER’s total portfolio.
Private credit funds produced higher returns than liquid bonds with a 4.3% return in the nine-month period, according to the preliminary interim figures.
This investment sector continued to grow, VER said, particularly in Europe.
“Banks’ difficulties in financing small and medium-sized enterprises have fuelled demand for private funding,” it said, adding that the pension fund now intended to increase its private credit investments in Europe and the US.
In August, VER appointed a new head of fixed income, Mikko Räsänen, to take on responsibility for the pension fund’s fixed income portfolio, worth around €9bn.
Viherkenttä said at the time that Räsänen, who led several different teams in portfolio management and product development in his previous employment at OP Financial Group, was expected to broaden the spectrum of expertise in VER’s fixed income team.
Meanwhile, real estate funds returned 4.3% between January and September, and unlisted equities 7.2%.
The fourth quarter of the reporting year, however, has started in a more upbeat mood, Viherkenttä said.
He said that, for long-term investors such as VER, big swings in share prices also present opportunities.
“Early this year, VER sold large chunks of equities, but, after the fall in share prices during late summer, we’ve been shopping around again,” he said.
VER’s total assets fell in value to €17.4bn at the end of September from €17.6bn at the end of December 2014.
The pension fund said it had been required to contribute an extra €500m to the government budget this year.