Finnish public pensions provider struggle with low returns

Keva, which is responsible for the funding of local government pensions and the investment of pension funds in Finland, has returned €857m on its investments so far in 2018.

The pension provider’s 1.7% return between January and September this year is a significant slow-down compared to the 5.3% return seen at the same time in 2017.

The top performers were alternative and real estate investment as private equity funds and unlisted equities returned 12.1% and real estate including real estate funds returned 3.5%.

Keva CEO Timo Kietäväinen said the earnings were in line with the forecasts and that after an exceptionally long upturn, this change in the market was not unexpected.

“For example, a fairly large weighting in emerging markets hit our overall returns somewhat this time. However, we should again remember that the pension investor has a long-term investment horizon, where activities are planned and tracked truly over the long term,” he said in a statement.

According to Keva, hedge funds saw a return of 3.3%, listed equities and equity funds 1.2% and fixed income investments came in negative, returning -0.2%. At the end of September, Keva’s investments had a market value of €52.6bn, only a slight increase from €50.9bn in 2017.

Fixed income, including the impact of derivatives, accounted for 40.5% of the return, listed equities and equity funds for 37.9% and real estate investments for 6.1%. Private equity investments and unlisted equities accounted for 8.4% of Keva’s entire investment portfolio and hedge funds for 7.1%.

CIO Ari Huotari said that given the present circumstances, it is quite a challenge to achieve a positive result at all.

“October has seen a further deterioration of the investment climate, with Finnish equities, for example, suffering quite badly. The markets are being spooked by economic development, interest rates and trade wars among other things as well as by the economic situation in Italy,” Huotari said.

“After a long good period, it’s actually even quite healthy to air some parts of the market a bit.”

Long-term investments have on the other hand remained at a good level. Capital-weighed annual cumulative real return on investments from funding started in 1988 was 4.2%. Non-capital-weighed average real return for the same period was 5.4% and the nominal return without capital weighting has been 5.9% for the past five years and 5.7 over the past 10 years.

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