Press release 26th August 2014

Press release 26 August 2014

4.8 per cent return on investment for the State Pension Fund

The return on investments of the State Pension Fund (VER) for the period 1 January to 30 June 2014 was 4.8 per cent, while the corresponding figure for the whole of 2013 was 6.4 per cent. VER’s ten-year average annual return is 5.7 per cent.

The market value of VER’s investments was 17.1 billion euros at the end of June (16.3 billion euros on 31 December 2013). VER investments comprised fixed-income investments of 51.8 (51.6) per cent, equities of 39.5 (39.9) per cent, and other investments of 8.6 (8.5) per cent.

The return on fixed-income investments was 3.6 per cent, while the return of equity investments was 6.8 per cent. Other investments achieved a 2.8 per cent return.

The world’s economic development has been in an unstable and vulnerable state for quite some time. Expectations are high that the United States will boost the rest of the world towards an improved situation. Europe’s poor economic development has continued. The crisis in Ukraine and the resulting economic sanctions have increased uncertainty with regard to economic development in Finland and the rest of Europe. A low interest rate policy has persisted, yielding good profits for various asset classes. VER’s returns on investment were at a good level in all asset classes, states Managing Director Timo Löyttyniemi.

The pension contribution returns in the first half of the year totalled 876 million euros. The accumulation is 46 million euros higher than at the end of June 2013.

A total of 870 million euros of VER assets were transferred to the State budget by the end of June. The corresponding figure from last year was 840 million euros.

Market situation

The global economy’s recovery from the financial crisis remained slow in the first months of year. Economic growth was sluggish as governments and the private sector have sought to reduce their indebtedness. In the United States, the exceptionally cold weather also contributed to negative gross domestic product in the first quarter, but it bounced back to 4 per cent in the latter half of the period. In the Eurozone, economic growth continued its gradual recuperation in the early part of the year. The inflation rate slowed to well below the European Central Bank's target, which led to the bank cutting the ECB interest rate in June. China’s economic growth was reinvigorated after the weak start to the year. Central banks maintained a relatively reflationary monetary policy.

Fixed-income investments

The return on fixed-income investments was 3.6 per cent, while the corresponding figure for the whole of 2013 was -1.6 per cent.

The return on fixed-income investments was positive in the first half of the year. This was due to a strong decrease in interest rates as the inflation exceptions remained moderate and geopolitical risks rose to the fore. Markets with higher credit risk yielded the best returns, while emerging bond markets and the government bonds of peripheral states yielded the best absolute returns.

Quoted equity investments

The return on equity investments was 6.8 per cent, while the corresponding figure for the whole of 2013 was 18.2 per cent.

Risk appetite remained high among investors early in the year, which led in part to good returns on equity investments. In the spring, the Ukraine crisis began to show signs of settling down, which lent itself to the development of a favourable climate in the stock market, particularly in the second quarter. However, after the period under review, the situation in the country has taken a turn for the worse, which has also been reflected in the development of the stock market in the late summer.

Other investments

The return on other investments was 2.8 per cent, while the corresponding figure for the entire year of 2013 was 5.7 per cent.

In terms of other investments, it has been beginning of the year. At the end of the period, the returns from all investment classes were positive. Private equity returns, which benefited from the strong development of the stock market, yielded the best returns. Real estate funds, in turn, were helped along by the continued positive trend in the real estate markets.

For more information, please contact:

Timo Löyttyniemi, Managing Director of VER, tel. +358 (09) 2515 7010, mobile +358 (0) 50 336 2094

Established in 1990, VER is a fund outside the State budget, whose proceeds the State uses to prepare for the financing of future pension liabilities and the balancing of pension costs. VER is an investment organisation, and it is responsible for the professional investment of state pension funds. At the end of June 2014, the market fund of VER's investment portfolio was 17.1 billion euros.

www.ver.fi