Most pension funds' real returns between 5-10% in 2020

Most international retirement funds achieved a real return of between 5 and 10 per cent in 2020, according to analysis by the Finnish Centre for Pensions (ETK).

The organisation’s international comparison of real returns, which covered the major Finnish earnings-related pension providers and large investors from Northern Europe, North America and Asia, found that the Swedish buffer fund AP6, which invests only in equities, had performed best out of the group with a real return of around 20 per cent.

Looking at the year as a whole, ETK described 2020 as “one of the oddest years in economic history”, noting that stock prices rose quickly due to central bank resuscitation after initially plummeting from the impact of the pandemic in early spring.

ETK director, Jaakko Kiander, said: “The pronounced rise of market prices continued throughout the year and offered better-than-expected returns in all asset categories for pension asset investors. The return was particularly good for listed shares whose value rose exceptionally fiercely.”

Analysing AP6’s success, ETK noted that the closed fund adheres to less strict regulations than Sweden’s other AP buffer funds, allowing it to rely solely on unlisted assets and to specialise in unlisted high-risk instruments.

ETK liaison manager, Mika Vidlund, commented: “AP6 reached one of its history’s highest annual returns. AP2, on the other hand, received a clearly weaker return than the other AP funds. 2020 was interesting also in the respect that an investment regulation reform raised the AP funds’ possibilities to increase risks in its investment operations.”

Finnish pension asset investors achieved an average real return of 4.9 per cent but dispersion among investors was found to be larger than usual, with the highest real returns on investments being recorded by the Church Pension Fund (7.2 per cent) and Ilmarinen Mutual Pension Insurance Company (6.8 per cent).

Meanwhile, the lowest performances were recorded by the State Pension Fund (3.6 per cent), Elo Mutual Pension Insurance Company (3.3 per cent) and Varma Mutual Pension Insurance Company (2.5 per cent).

ETK said Finnish investors’ returns were in line with those achieved by Swedish buffer funds operating under similar rules, such as Alecta and AMF, as well as Dutch public sector and healthcare professionals’ funds ABP and PFZW.

The average annual return of the Finnish pension investors over a period of one decade was 4.4 per cent, which is an ample one percentage point below that of these Swedish and Dutch control funds in the group and around half of the approximately 9 per cent returns achieved by the top performers, Canada’s CPPIB and Norway’s SPU.

Explaining some of the latter’s success, ETK senior adviser, Antti Mielonen, said: “Exchange rates also affect the returns. Particularly the Norwegian SPU has benefited from a weaker Krone in relation to the euro and the US dollar. It invests only in instruments outside Norway, so the values of the investments have increased when measured in Krone.”

    Share Story:

Recent Stories

How the US’s robust securities law can benefit European investors
Over recent years several financial scandals have shocked investors, such as the Danske Bank money laundering case. When a scandal like this occurs, investor returns suffer, which is why many seek redress. Many European investors seek to recover assets lost as a result of securities fraud through U.S. courts, with their robust securities laws.

In this podcast, Jeremy Lieberman, Managing Partner at Pomerantz LLP, talks to European Pensions Editor, Natalie Tuck, about how European investors can use U.S. courts to recover assets lost to securities fraud and the challenges facing investors seeking compensation.

Podcast: Opportunities in Chinese equities
China was the first country to be impacted by the coronavirus outbreak, which lead to its economy plummeting. Since then, however, the country has managed to keep outbreaks of the virus under control, and is experiencing a V-shaped recovery with many areas returning to normal.

In this podcast, David Choa CFA, Head of Greater China Equities at BNP Paribas Asset Management talks to European Pensions Editor, Natalie Tuck, about China, its position within the global economy and the potential institutional investor opportunities within Chinese equities.
Mitigating risk
BNP Paribas Asset Management’s head of pension solutions, Julien Halfon, discusses equity hedging with Laura Blows

Europe’s pensions challenges
Francesca Fabrizi meets Matti Leppälä, Secretary General and CEO of PensionsEurope, to discuss the key aims and objectives of the association today.