State Pension Fund earns 5.5 per cent return on investments

State Pension Fund earns 5.5 per cent return on investments

The return on the investments made by the State Pension Fund (VER) reached 5.5 per cent during 1 January – 30 June 2015. At the end of June, the market value of the Fund’s assets amounted to EUR 18.2 billion (EUR 17.6 billion on 31 December 2014).

VER’s average yearly rate of return is 5.2 per cent over the past ten years and 7.1 per cent over the past five years.

At the end of June, of the investments made by VER, liquid fixed income instruments accounted for 49.5 per cent, listed equities for 39.5 per cent and other investments for 10.6 per cent.

All the asset classes generated returns during the first half of 2015. The highest return, 13.3 per cent, was earned by listed equities while liquid fixed income instruments returned 0.5 per cent.

• VER achieved a good rate of return during the first half of the year mainly due to the exceptionally vibrant equity market. Although the markets lost steam in the second quarter, European and Japanese stocks in particular continued to generate double-digit returns. ​The eurozone government bonds behaved exceptionally with the interest rates reaching record low in places,” says CEO Timo Viherkenttä.
• ​It is advisable to prepare for continued fluctuations in the investment markets in the latter half of the year as well. There are a number of reasons for this such as the uncertainties affecting the Chinese economy, geopolitical risks and the potential increase in the refinancing rate by the US Federal Reserve for the first time in nine years. Despite the adjustments in the spring and summer, share prices and interest rates still remain at a level that calls for caution in expected returns, concludes Viherkenttä.

During the first half of 2015, VER earned a total of EUR 845 million in pension premium income. As the Fund transferred EUR 1,137 million to the government budget, its net premium income was EUR 292 million in the red.

Relatively speaking, the state’s pension liabilities have been pre-funded to a lesser extent than in the private and municipal sector. At the end of 2014, the state’s pension liabilities amounted to EUR 95.4 billion and the funding ratio was 18 per cent. According to the State Pension Fund Act, the State Pension Fund will be grown until its assets cover 25 per cent of the state’s pension liabilities.

Liquid fixed income instruments

Liquid fixed income instruments returned 0.5 per cent.

The fall in interest rates triggered by the ECB’s quantitative easing levelled off in the second quarter with the rates rising sharply in April and June. The heightened tensions between Greece and the creditors early in the summer increased the risk premiums on the most risk-laden fixed-income asset classes. In absolute terms, the best returns were earned on emerging market debt, even though these markets also suffered from the turbulence due to the situation in Greece.

Listed equities

The return on investments in listed equities was 13.3 per cent.

At the end of the first half of the year, the rates of return on listed equities was still sound, despite the fact that overall returns during the second quarter were negative, particularly due to the weak performance of the market in June. Towards the end of the reporting period, uncertainty was created by Greece’s aggravated financial plight and the sharp fall of the equity market in mainland China.

Other investments

All the other asset classes generated healthy steady returns across the board. While private equity investments, in particular, benefitted from the strong equity market in early 2015, a positive mood was also sustained in the property market throughout the first half of the year. Private equity investments inclusive of returns from infrastructure and private credit funds yielded 2.7 per cent and real estate funds 2.1 per cent. The return on non-listed equities reached 6.1 per cent.

Hedge funds yielded a return of 3.6 per cent. The highest return was earned by equity strategies.

Inquiries:

CEO Timo Viherkenttä tel.: +358 (0)9 2515 7010

All the figures presented in this press release 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 2015, the market value of the Fund’s investment portfolio stood at EUR 18.2 billion.