State Pension Fund earns 7.4 per cent return on investments

State Pension Fund earns 7.4 per cent return on investments

The return on the investments made by the State Pension Fund (VER) reached 7.4 per cent during 1 January – 31 March 2015. VER’s average rate of return over the past ten years is 5.9 per cent.

At the end of 2014, the market value of the Fund’s assets amounted to EUR 18.7 billion (EUR 17.6 billion on 31 December 2014). Of the investments made by VER, fixed income instruments accounted for 50.0 (50.4) per cent, equities for 40.3 (39.5) per cent, alternative investments for 6.9 per cent and other investments for 3.0 per cent. The impact of derivatives are included in the figures.

Fixed income instruments earned a return of 1.8 per cent and equities 16.7 per cent. With alternative investments, the rate of return was 0.8 per cent and with other investments 0.9 per cent.

• “In early 2015, the yields on investments grew considerably.  In particular, the return on equities was excellent. Both in equities and fixed-income instruments, the positive market developments were boosted by the reflationary monetary policies adopted by the central banks. Overall, the rate of return on VER’s investments was good at 7.4 per cent. In the future, the low general interest rates will pose major challenges in terms of investment returns,” says Acting Managing Director Maarit Säynevirta.

By the end of March 2015, the State Pension Fund had transferred to the government budget a total of EUR 569 million, EUR 134 million more than in the previous year. Under the Act on the State Pension Fund, VER is required to contribute an amount equivalent to 40 per cent of the state’s total pension expenditure to the state budget annually. In December 2014, Parliament passed a decision that, exceptionally, a maximum of EUR 500 million is to be transferred to the government budget in addition to the regular amount.

Inquiries:

Acting Managing Director Maarit Säynevirta, tel. +358 (0)9 2515 7027

Fixed-income investments

Fixed-income instruments earned a return of 1.8 per cent as compared to the all-year figure of 4.9 per cent for 2014.

In March, the European Central Bank started quantitative easing, which cut the interest rates even further. Consequently, the return on fixed-income investments during the first quarter proved to be higher than expected. In absolute terms, the best returns were earned on emerging market debt which benefited from the sustained flow of investments to riskier asset classes.

Listed equities

The return on listed equity investments was 16.7 per cent as compared to the all-year figure of 11.7 per cent for 2014.

In the equity markets, 2015 began in a very positive mood and the return on shares during the first quarter was excellent. The European Central Bank’s expanded asset purchase programme was welcomed, which further boosted the already strong sentiment in the equity market. The euro continued to weaken against most currencies contributing to the high returns on equities.

Alternative investments

Alternative investments returned 0.8 per cent.

With alternative investments, the returns in the first quarter traditionally consist of expectations regarding future developments. Of the asset classes in this portfolio, the best returns were earned by private equity and real estate funds, which both yielded a positive result. The strong equity market contributes to earnings in private equity investments. With the low interest rates stepping up investor interest in real property, the positive mood has continued to prevail in the real estate market during the first part of the current year.

Other investments

The return on other investments was 0.9 per cent

The absolute return funds included in other investments earned a return of 3.3 per cent during the reporting period. Of the funds in the absolute return portfolio, the best performance was put in by macro funds that benefited from trends that started already in 2014, such as the strengthening U.S. dollar. Credit spreads were reduced further while the first few months were difficult, particularly for distressed funds.

All the figures presented in this bulletin are preliminary and unaudited.

Established in 1990, the State Pension Fund (VER) is an off-budget fund through which the state prepares to finance future pensions and equalise pension expenditure. VER is an investment organisation responsible for investing the state’s pension assets professionally. At the end of March 2015, the market value of the Fund’s investment portfolio stood at EUR 18.7 billion.