Finland’s largest pension fund, Kebba, delivered a significantly higher annual investment return than the country’s other large pension funds, according to its annual report, but at the same time it remained in line with the domestic stock market downturn in 2023. Both suffered losses from real estate investments.
Keva, which targets municipal workers and others, reported a return of 6.8% on a total portfolio market value worth 65.7 billion euros by 2023, the fund reported on Thursday.
Meanwhile, results released this morning by Finland’s two largest pension insurance companies showed Varma outperforming Ilmanen with a 6.0% return, compared to Ilmanen’s 5.8% return.
According to results also released today, the two smaller pension insurance companies in the income-based pension system, Elo and Veritas, had return rates of 6.0% and 5.7%.
Ali Huotari, Keba’s chief investment officer, said the fund’s “good investment performance” was mainly due to developments that took place in the second half of last year.
“At the end of the year, there was optimism in the market about lower inflation combined with a slower-than-expected economic effect, and there was also optimism about central banks cutting interest rates,” he said.
“On the other hand, real estate investment fell across the board last year,” he said.
Keba achieved record returns in publicly traded stocks in 2023, rising 10.1% last year with bonds generating 9.0% and hedge funds generating 6.6%. However, the real estate return was -6.1%.
In September last year, Keba announced that it would significantly increase the risk level of its investment portfolio “in the near future” following a decision by its board of directors.
IPE contacted Mr. Keva to ask whether the portfolio’s equity weighting had indeed been increased by the end of 2023.
Risto Murt, Varma’s president and chief executive officer, said the company’s revenue last year was mainly generated outside Finland due to the weak performance of the domestic stock market.
“The Finnish economy and stock market have slumped. Rising interest rates are clearly putting a brake on the economy,” he said.
Finland’s Helsinki 25 Index fell nearly 12% last year, according to data from the website Trading Economics.
Ilmanen also commented that 2023 was a difficult year for Finnish stocks, and after a 13.5% loss in real estate in the same year, the low return on Ilmanen’s real estate portfolio in particular was a factor that “other than that… “It reduced what was an excellent return on investment.”
Ilmanen’s own stock, which accounts for 46% of total assets, returned 10.1% at the end of 2023, while Elo’s stock returned 8.6% for the year.
Ero, the current €30 billion pension insurance company, announced towards the end of the year that it had increased its allocation to listed equities to 30.8% by year-end.
Mr. Ero posted a 2.4% loss in real estate last year, saying the uncertain economic outlook and changes in financial markets have kept real estate transaction volumes low and yield requirements continue to rise.
“The general increase in yield requirements was also reflected in the value of Eero’s real estate investments, with a total impairment charge of €141.2 million recognized in the value of direct real estate investments in 2023,” it announced today.
Real estate accounted for €2.58 billion of Eero’s total portfolio at year-end.
Looking to the future, Veritas Chief Investment Officer Kari Vatanen said the beginning of 2024 will remain challenging for the domestic economy.
“However, purchasing power is increasing and we can already expect a gradual downward trend in interest rates as the summer approaches.
“This is likely to stimulate the real estate market and the economy in general,” he said.
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