State Pension Fund’s annual return -3.4% in 2018; 10-year average return 6.4%

The market value weighted return on the investments by the State Pension Fund of Finland (VER) reached -3.4 per cent in 2018 (6.6 per cent in 2017). The real rate of return was -4.5 per cent (6.0 per cent). 

VER primarily seeks a long-term rate of return sufficient to finance the state pension system. VER’s average nominal rate of return over the past five years is 6.4 per cent, the real return being 5.2 per cent. The average nominal 10-year return is 4.4 per cent and the real return being 3.8 per cent.

At the end of 2018, the market value of VER’s investments amounted to EUR 18.5 billion (EUR 19.6 billion in 2017). Of all the investments, fixed income instruments accounted for 38.4 per cent and equities 47.2 per cent, while the rest consisted of other investments and the impact of derivatives.

Of the large asset classes, liquid fixed income instruments generated a return of -1.9 per cent and listed equities -7.4 per cent. Private equity funds, debt funds, unlisted real estate investment trusts and infrastructure funds yielded double-digit returns.

In 2018, VER received approx. EUR 1.4 billion in pension contribution income and it transferred close to EUR 1.9 billion to the government budget. Every year, VER contributes an amount equivalent to 40 per cent of the state’s total pension expenditure to the government’s annual budget. The amounts to be transferred increase continuously with the growth in pension expenditure.
 

“The opportunities for hedging the portfolio were poorer than normally because most returns on equities and fixed income instruments were negative. Finally, a sharp fall in share prices in December swept away the returns for the year as the markets did not recover until early 2019,” says CEO Timo Viherkenttä.

“By contrast, the returns on non-liquid fund investments were excellent across the board. However, the percentage of these investments in the portfolio is limited by the regulations governing VER’s activities.

However, the long-term real returns, which are of primary concern to VER, remained sound. The average ten-year-return of 5.2 per cent clearly exceeds the foreseen long-term return”, says Viherkenttä.
 

At the end of 2018, the state’s pension liability under the state pension system was EUR 92.1 billion. The funding ratio was approximately 20 per cent.


The Annual Report of VER is available here.


Inquiries:

CEO Timo Viherkenttä, firstname.lastname@ver.fi, tel.: +358 (0)295 201 210.

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 2018, the market value of the Fund’s investment portfolio stood at EUR 18.5 billion.