Earnings-related pension assets in Finland decreased to €193.4bn over the past year due to the weak developments in its equity investments, a recent investment analysis found.

Finnish assets had a total real return of -3.5 per cent in 2018 and shrunk by €6.4bn, according to the Finnish Pension Alliance (Tela) and its recent statistical analysis of occupational pension insurers.

The real return on equity investments was -5.7 per cent, and fixed income returned -2.3 per cent. Real estate investments, however, returned a positive 4.7 per cent.

Tela analyst Kimmo Koivurinne said: “Market uncertainty in the last quarter of the year caused the value of listed equity investments to decline sharply. Prices dropped abnormally fast at the end of the year.”

The uncertainty came from tensions around trade policies and the US Federal Reserve’s interest rate hikes.

Despite the loss, Koivurinne said the financing of earnings-related pensions remain sustainable and one-year changes are of “little importance”. Pension assets grow as a result of economic growth and inflation and need to be considered in the long term.

The share of equity and equity-type investments rose by two percentage points last year, to 53.4 per cent of investment assets (€103.3bn). Fixed income investments remained almost unchanged at about €73.2bn (37.8 per cent) and the real estate investments increased slightly to €16.9bn (8.8 per cent).

At the end of 2018, 55.6 per cent of the occupational pension assets were invested outside the euro area, 24.5 per cent in Finland and 19.9 per cent in the rest of the euro area.

“Even though end-of-the-year earnings were negative, equity weighting is a safe strategy in terms of realised returns,” Koivurinne said.

“On the other hand, a good return on real estate investments compensate for the weaker equity returns of last year. On the basis of the data for the first half of the year, equity performed well.”

Share Story: