Annual Report 2023

Published 2024-02-19 at 14:16

Return on investments 7.7% in 2023; ten-year average return 5.4%


The return on the VER’s pension assets was clearly positive in 2023.The state of the 2023 investment markets was mixed, yet optimistic. Overall returns were healthy despite a number of uncertainties affecting the economy and investor sentiment. The main factor, however, was the falling inflation figures in the United States and Europe, which lent hope that inflation would be contained, at least for the time being.

At the same time, economic growth weakened especially in Europe, and any progress was non-uniform. A high inflation rate combined with increased interest rates created an environment in which interest costs became more significant, creating uncertainty about the future, particularly in the real estate sector. In the United States, robust economic growth continued with unemployment figures showing no signs of rising by the end of the year. The tight interest rate policy pursued by central banks curbed economic growth sufficiently to affect expectations regarding interest rate policy towards the end of the year. Central banks signalled that increases were now over, implying that the upward trend in rates had come to an end. Investors took this to mean that expectations of falling interest rates moved closer, creating favourable market conditions for equities and government bonds.

Stock market returns in the United States were dominated by the strong performance of technology shares. These companies accounted for such a high percentage of the market capitalisation of the whole market that the sentiment in respect of technology stocks affected the entire S&P500 stock index. While the mood varied throughout the year, the strong performance of technology stocks was a key driver of equity returns for 2023 as a whole.

As far as geopolitics is concerned, 2023 gave a lot of cause for concern. A dominant theme towards the end of the year was the conflict between Israel and Hamas. Russia's war of aggression in Ukraine continued throughout the year, and the front lines were consolidated in the second half of 2023.


At fair values, the total return on the investments made by the State Pension Fund (VER) in 2023 was 7.7 per cent. VER’s average nominal rate of return was 6.4 per cent for the past five years and 5.4 per cent for the past ten years.

The real rate of return on investments in 2023 was 4.0 per cent. VER’s five-year average real return was 2.9 per cent and ten-year real return 3.3 per cent.

According to the objective established by the Ministry of Finance, VER’s long-term return must exceed the average cost of net government debt. Over the past ten years, VER’s average market value weighted rate of return has beaten the cost of net government debt by 4.2 percentage points. Since 2001, when VER’s operations assumed their current form, the total returns earned by VER have exceeded the average cost of government debt by about EUR 10.6 billion.


VER’s two large asset classes, liquid fixed income investments and listed equities, gave positive returns in 2023. The return on liquid fixed income instruments was 6.9 per cent and that of listed equities 11.3 per cent. Of the other asset classes, the best performance was generated by private credit funds at 8.5 per cent and other fixed income investments at 7.9 per cent.

At the end of 2023, the market value of the Fund’s investment portfolio stood at EUR 22.8 billion. Of all the investments, fixed income instruments accounted for 40.3 per cent, equities 53.3 per cent and other investments 8.0 per cent of the total. The allocation effect of derivatives was -1.5 per cent.


Liquid fixed income investments

In 2023, the liquid fixed income investments returned 6.9 per cent and its risk-adjusted market value at the end of the year stood at EUR 8.4 billion. The duration of the fixed income portfolio remained shorter than the neutral duration of the portfolio for the entire year, while the modified duration of the bond portfolio was 4.7 per cent at the end of 2023.

In 2023, the leading central banks continued to raise their policy rates during the first three quarters. Market rates peaked in October, after which they started to fall considerably. More than anything else, comments by US Federal Reserve (Fed) members, indicating that policy rate levels were approaching their peak and suggesting that the rise in the long-term market rates was doing the job on behalf of the central bank, caused interest rates to take a downward turn. The Fed meeting in December signalled a 0.75 percentage point rate cut for 2024, but interest rate markets were already pricing in rate cuts of around 1.50 percentage points.

In the fourth quarter, the European Central Bank (ECB) let it be understood that it was too early to talk about a cut in bank rates and that the ECB needed further confirmation that price pressures were easing before adjusting its rate policy stance. At its December meeting, the ECB lowered its inflation forecasts for 2024, but the level was still far from the ECB's target. Despite this, market rates in Europe were lower at the end of the year than at the beginning, except for rates with a maturity of less than two years.

Also, the fall in long-term interest rates towards the end of the year reduced risk premiums on corporate bonds and emerging market debt. At the end of the year, risk premiums were significantly narrower than in early 2023.

For VER's liquid fixed income investments, 2023 was an excellent investment year, both in terms of absolute returns and relative to the benchmark indexes. In particular, performance was strong in the fourth quarter, as interest rates fell and risk premiums tightened. As of the beginning of 2023, the best returns were generated by higher-risk instruments, such as lower-rated corporate bonds and the investments in emerging market debt denominated in US dollars.

Other fixed income investments

Other fixed income investments include investments in private credit funds and direct lending to companies.

At the end of 2023, other fixed income investments accounted for 3.3 per cent of VER’s portfolio.

The current interest rate environment has been extremely favourable for private credit funds investing primarily in floating rate debt. As a result of rising interest rates, expectations for fund returns have improved, although a concurrent increase in corporate financing costs have elevated the risk of credit losses to some extent. So far, the portfolio funds are putting in a steady performance irrespective of strategy.

The return on other fixed income investments was 7.9 per cent in 2023. Private credit funds returned 8.5 per cent and direct loans 4.9 per cent. At the end of 2023, unfunded commitments totalled EUR 376 million.


Listed equities

In 2023, the return on listed equities was 11.3 per cent. Stock market returns, especially with the strong rebound seen towards the end of the year, proved quite positive despite the many uncertainties encountered in 2023. While the year got off to a buoyant start, the regional banking crisis in the United States completely upset market sentiment in mid-March. However, prompt action and powerful measures taken by the authorities quickly brought the crisis under control, and by the summer the situation had calmed down considerably. While the summer went smoothly in the stock market, dark clouds started gathering on the horizon in early autumn, mainly due to the Chinese real estate sector. The crisis, which started a couple of years ago, reared its head again, causing uncertainty primarily in China while also having wider implications. While the geopolitical situation in the world remained extremely tense throughout the year, even worsening towards the end of 2023 due to the conflict in the Middle East, this has not yet had any substantial impact on the mood in the stock market.

The big theme in the financial markets, including the equities markets, was inflation and its stronger-than-expected resilience in the early part of the year. Central banks' fight against elevated inflation caused them to raise policy rates to levels not seen for a very long time. Movements in interest rates were also closely watched by the stock markets. Accordingly, one of the main drivers of the strong stock market performance towards the end of the year was indeed the clear decline in interest rates during the last months of 2023. The best returns on VER's listed equities were generated by investments in the North American stock markets, while the weakest returns during the year came from investments in Nordic equities, where the weak performance of the Helsinki Stock Exchange in particular weighed on returns.

In terms of market capitalisation, the value of VER’s listed equities increased from EUR 8.7 to EUR 9.5 billion during 2023. At the end of the year, direct equity investments accounted for 24.0 per cent and fund investments 76.0 per cent of the total. At the end of 2023, VER held direct interests in 91 companies and fund units in a total of 62 funds.

Other equity investments

VER’s other equity investments include investments in private equity funds, infrastructure and unlisted equities.

At the end of 2023, other equity investments accounted for 11.7 per cent of VER’s portfolio. Private equity investments returned 6.5 per cent, infrastructure funds 4.0 per cent and unlisted equities 1.2 per cent.

In private equity, the transaction market already started to slow down at the end of 2022 and the trend persisted throughout 2023. The main reason for the market's decline is perceived to be the divergent views of sellers and buyers as to the valuation levels of companies. In private equity, company valuations held up at relatively high levels, even though equity markets were quite volatile and the higher cost of financing was expected to have a negative impact on companies' financial performance. So far, however, average corporate performance has remained sound, even though economic uncertainty did have an impact on companies in certain sectors.

The year-end return on private equity funds was 5.0 per cent. At the end of 2023, unfunded commitments totalled EUR 784 million.

The year-end returns on infrastructure funds were healthy despite the rise in interest rates. While the changed interest rate environment has had some impact on corporate valuations, the infrastructure funds – serving as an inflation hedge – have helped offset the valuation pressure due to rising interest rates.

The all-year return on other fixed income investments was 6.8 per cent. At the end of 2023, unfunded commitments totalled EUR 283 million.

Investments in unlisted stocks consisted of investments in three companies. The year-end return on the portfolio was 6.0 per cent.


VER’s other investments consists of investments in real estate investment funds, hedge funds and systematic strategies.

At the end of 2023, other investments accounted for 8.0 per cent of VER’s portfolio. Of the invested assets, 3.9 per cent was placed in real estate investment funds and 4.1 per cent in hedge funds.

2023 was a challenging year for real estate investments. The full impact of the rise in interest rates was felt in property valuation levels. With a few exceptions, the returns on real estate investment funds were negative.   

The return on investments in unlisted real estate investment funds was -6.8 per cent at the end of the year, while unfunded commitments totalled EUR 446 million.

The return on hedge funds and systematic strategies reached 3.2 per cent in 2023. The low correlation with equity and fixed income markets was reflected in lower returns by said asset classes, as equities and fixed income investments performed extremely well, especially towards the end of the year. Among hedge funds, multi-strategy funds and funds focusing on quantitative strategies performed particularly well, managing to take advantage of significant fluctuations in yield differentials between fixed income and equity markets.  The period was challenging for macro funds and funds focused on Asian markets, which suffered from the uncertainties affecting the Chinese economy in particular. Derivatives-based systematic strategies yielded a slightly negative return due to the costs of defensive strategies.


VER gives due consideration to ESG factors in its sustainable long-term investment policy. The goal of VER’s responsible investment activities is to identify long-term ESG risks and support sustainable development. Portfolio managers assess sustainability aspects together with other factors affecting the investment both at the time when the investment decision is made and during its lifecycle. VER's approaches to sustainability consist of investments based on its corporate values and international standards, ESG integration and the efforts to have an impact.

VER’s most important sustainability goal is the mitigation of climate change. VER’s principles for responsible investment address not only the climate risk but also other sustainability risks. To contribute to the attainment of the objectives set out in the Paris Agreement, VER seeks to achieve full carbon neutrality of its entire portfolio in 2050. VER reports on the carbon footprint of the portfolio annually, i.e. the carbon intensity of the portfolio as well as the absolute emissions of the portfolios of listed equities and corporate bonds. VER’s latest climate report was released in spring 2023. 

Aside from emissions, VER monitors the performance of its portfolio in terms of the UN Global Compact principles and related international standards. Said norms related to areas such as human rights, corruption, labour rights and the environment. VER seeks to ensure that none of its portfolio companies violate any international standards. Monitoring is carried out by an external service provider.

VER’s long-term investment policy is determined by its Board of Directors. The sustainability policy adopted by VER’s Board of Directors provides the basis for its responsible investment activities and serves as a guide for setting sustainability objectives. In addition to the principles of responsible investing, VER's Ownership Policy Guidelines set out its expectations regarding the portfolio companies’ sustainability performance. By stating these expectations, VER seeks to ensure, for its part, that VER-owned companies give due consideration to the sustainability expectations included in VER's objectives.  VER is a member of organisations such as PRI, CDP and Finland’s Sustainable Investment Forum (FINSIF), and also participates in investor initiatives.


The role of the State Pension Fund in equalising the government’s pension expenditure continues to grow. In 2023, the State’s pension expenditure totalled a little over EUR 5.3 billion. As VER contributed 40 per cent towards these expenses to the government budget, the transfer to the 2023 budget amounted to approximately EUR 2.1 billion. Over the same period, VER received approximately EUR 1.7 billion in pension contributions. Its net pension contribution income has now turned permanently negative, meaning that more money is transferred from VER to the government budget than VER receives in pension contribution income. This gap between income and budget transfers will continue to grow year on year and slow down the growth of the Fund.

At the end of 2023, the State’s pension liabilities amounted to EUR 101.0 billion, while the funding ratio was 22.7 per cent. The Act on the State Pension Fund was amended in spring 2022. As part of this amendment, VER’s contribution to the government budget was increased as of 2024. Consequently, VER’s budget transfers will be gradually increased from the current 40 per cent to 45 per cent during 2024–2028. If the funding ratio exceeds 25 per cent for two consecutive calendar years, an additional transfer of three percentage points will be made to the government budget.

Following the legal reform, VER’s Board of Directors initiated a strategy development process. The strategy was updated concurrently with the 2023 investment plan and adopted in January 2023. The objectives set out in the strategy create the basis for future investment activities. The baseline allocation of the investment portfolio is determined in the annual investment plan. Simulations suggest that the baseline allocation of the portfolio will achieve the long-term objectives established for VER.


The State Pension Fund (VER), established in 1990, is an off-budget entity. Through VER, the State prepares for financing future pensions and seeks to equalise pension expenditure over time. By nature, VER is a buffer fund. VER’s assets are not used to pay out pensions directly; instead, all state pensions are paid out of the appropriations allocated for this purpose in the government budget.

The collection of pension contributions to the state pension system and related duties, such as the processing of pension applications and payment of pensions, are handled by the Local Government Pension Institution Keva. VER pays Keva a management fee for these services, which in 2023 amounted to about EUR 16.0 million.

The responsibility for oversight and control of VER’s operations rests with the Ministry of Finance, which is authorised to issue general instructions regarding the organisation of VER’s administration, financial management and the investment of its assets. According to the current operational guidelines issued by the Ministry of Finance (dated 9 Aug 2022), equity investments must not exceed 60 per cent of the value of VER’s portfolio. Fixed income instruments must account for a minimum of 30 per cent, and liquid and low-risk fixed income instruments for a minimum of 20 per cent of the value of the portfolio. Other investments must not exceed 15 per cent of the value of the portfolio at the time the investment is made. Real estate investments must be made in the form of fund investments or equivalent indirect investments.

VER’s Board of Directors is appointed by the Ministry of Finance. The Board has seven members, three of whom are appointed from among candidates proposed by central staff organisations of government employees. Vesa Vihriälä, Doctor of Political Science, serves as Chair and member of the Board of Directors. The Chair of the Investment Advisory Committee is Jussi Laitinen.

VER’s operating costs in 2023 amounted to EUR 8.7 million, which represents 0.04 per cent of its average annual capital. During the year VER had an average of 28 employees. Job satisfaction at VER is good. VER invests in human resources and offers ample opportunities for skills development, which is important both in seeking maximum returns on investments and in managing risks.




Return on investments

7,7 %

-6,8 %

Real return

4,0 %

-14,6 %

Return by asset class

Fixed income investments

  Liquid fixed income investments

6,9 %

-8,2 %

  Private credit funds

8,5 %

-0,5 %

  Direct lending

4,9 %

5,0 %


  Listed equities

11,3 %

-12,4 %

  Private equity funds

5,0 %

12,5 %

  Infrastructure funds

6,8 %

15,6 %

  Unlisted equities

6,0 %

7,8 %

Other investments

  Unlisted real estate funds

-6,8 %

4,1 %

  Hedge funds and systematic strategies

3,2 %

5,0 %

Average returns

                     5 years

10 years

Average return on portfolio p.a.

                           6,4 %

5,4 %

Average real return p.a.

2,9 %

3,3 %

Average effective interest rate on government debt p.a.

0,9 %

1,2 %

Portfolio allocation



Total investments, EURm

                     22 802,9

21 604,1

Fixed income investments

                         40,3 %

40,7 %

  Liquid fixed income investments

37,0 %

37,3 %

  Other fixed income investments

3,3 %

3,3 %

Equity investments

53,3 %

47,6 %

  Listed equities

41,5 %

40,2 %

  Other equity investments

11,7 %*)

7,4 %

Other investments

8,0 %

12,9 %*)

  Unlisted real estate funds

3,9 %

4,3 %

  Hedge funds and systematic strategies

4,1 %

4,4 %

*) Infrastructure investments were included in other equity investments in 2023 and in other investments in 2022.

Key figures




6,7 %

8,1 %

Sharpe ratio



Other key figures



Pension contribution income, EURm

1 679

1 610

Budget transfers, EURm

                            2 116

1 982

Net contribution income, EURm



Balance sheet total, EURm

17 291

17 093

Pension liabilities, EUR bn



Funding ratio

22,7 %

22,4 %

Additional information:

Additional information is provided by CEO Timo Löyttyniemi ,, tel. +358 (0)295 201 210.

Established in 1990, the State Pension Fund of Finland (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 2023, the market value of the Fund’s investment portfolio stood at EUR 22.8 billion.