Half-year report of the State Pension Fund 1 January - 30 June 2016

Published 2016-08-25 at 12:32

The return on the investments made by the State Pension Fund (VER) reached 0.9 per cent during 1 January–30 June 2016. The return for the second quarter was 1.8 per cent.

VER’s average rate of return is 5.8 per cent for the past five years and 4.6 per cent for the past 10 years, while the equivalent real return is 4.7 per cent (5 years) and 2.9 per cent (10 years).

Of the main asset classes, liquid fixed-income instruments returned 3.7 per cent and listed equities -2.4 per cent during the first half of the year.

At the end of June, the market value of the Fund’s assets amounted to EUR 17.9 billion (EUR 17.9 billion on 31 December 2015). At the end of June, fixed-income instruments accounted for 47.5 per cent, equities for 43.2 per cent and other investments for 8.2 per cent all VER’s investments.

“The return on investments was barely in the black, mainly due to the fixed-income instruments. The investments in the emerging markets, in particular, generated healthy returns,” says CEO Timo Viherkenttä.

“The stock markets had not fully recovered by June from the sharp fall experienced in early winter and the new blow delivered by the EU referendum in the UK. Subsequently, share prices have exceeded the year-start levels in many markets.”

“The historically low interest rates and record-high U.S. stock prices give reason to prepare for modest returns as well as setbacks in the future,” says Viherkenttä.

During the first half of 2016, VER earned a total of EUR 763 million in premium income. By the end of June, the State Pension Fund had transferred a total of EUR 892 million to the government budget. Under the law, VER is required to contribute to the government’s annual budget an amount equivalent to 40 per cent of the state’s total pension expenditure. The amounts to be transferred increase continuously with the growth in pension expenditure.

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 2015, the state’s pension liabilities amounted to EUR 95.7 billion, while the funding ratio was 19 per cent. Under the law, the State Pension Fund will be grown until its assets cover 25 per cent of the state’s pension liabilities.



Liquid fixed-income investments

The return on liquid fixed-income instruments was 3.7 per cent.

After a jittery start, the interest markets performed very well during the first half of the year. Only the victory of the voters in favour of leaving the EU in the UK referendum caused a temporary rise in volatility towards the end of June, but the rise in the interest rates of even the most risk-exposed fixed-income investments remained short-lived.

The ECB’s decision in March to lower its interest rate and increase asset purchases and extend them to euro-denominated investment-grade company bonds buttressed the corporate bond market and Eurozone government bonds. The record-low interest rates in the Eurozone caused investors to turn their attention to the emerging markets, while the FED’s dovish statements and sharp increase in the price of oil gave an additional boost to these markets. As a result of these developments, the returns on fixed-income instruments in the emerging markets were extremely strong during the first half of the year.

Other fixed-income investments

Other fixed-income investments include investments in private credit funds.

The private credit investments earned a 1.0 per cent return. The market conditions remain favourable for the funds. Except for Northern Europe, small and medium-sized companies in particular have been compelled to seek funding from private sources. Even though competition has intensified to some extent, the margins have remained virtually unchanged. 


Listed equities

Listed equities gave a return of -2.4 per cent.

In the equities market, the first half of the year was characterised by exceptionally sharp mood swings. The year started in a very depressed mood and the stock markets began falling on a broad front right after the beginning of 2016. The steep decline continued up until mid-February after which the markets clearly recovered, with the recovery sustained until mid-April. Fluctuations were again experienced in May, but they were small compared with June when the approaching EU referendum in the UK created much nervousness. At first, the outcome – the victory of the Brexit camp – caused near-panic in the global financial market, but the recovery from this shock was surprisingly quick. However, VER’s return on investments in listed equities remained slightly in the red at the end of the half year.

Other equity investments

Other equity investments consist mainly of investments in private equity funds and unlisted stock. The portfolio also includes investments in listed real estate funds.

Private equity investments returned 4.5 per cent and unlisted equities 4.8 per cent. The return on listed real estate funds was 5.8 per cent.

By the end of June, the fluctuations in the stock markets in early 2016 were not reflected much in the returns on private equity funds. Successful exits scheduled for early 2016 also contributed to the positive results. Underlying the returns on unlisted equities was the sound financial performance of real estate companies. 


VER’s other investments consist of investments in real estate, infrastructure and hedge funds and risk premium strategies.

The return on real estate funds was 1.8 per cent while infrastructure investments yielded 7.9 per cent.

The European real estate market continued to develop favourably during the early part of the year. While the June Brexit referendum created uncertainty about the future, the changed market prospects were not yet reflected in valuations. A highly successful exit was made in infrastructure investments, with the dividends earned on the investments contributing to hefty returns.

Hedge funds returned -2.3 per cent. Marco funds, in particular, suffered from greatly reduced risk levels and major allocation changes between strategies. During the reporting period, the best performance was put in by credit risk strategies.

Risk premium strategies yielded a return of 5.6 per cent. Momentum strategies generated a particularly good return in the volatile market conditions. Currency strategies also did well, especially as the emerging market currencies yielded a sound return.





Investments, MEUR (market value)

17 859

17 853

Fixed-income investments

8 490

8 747

Equity investments

7 714

7 687

Other investments

1 459

1 348


Breakdown of the investment portfolio


Fixed-income investments

47,5 %

49,0 %

Equity investments

43,2 %

43,1 %

Other investments

8,2 %

7,6 %




Return on investment

0,9 %

4,9 %

Fixed-income investments

Liquid fixed-income investments

3,7 %

0,2 %

Other fixed-income investments

1,0 %

7,1 %

Equity investments

Listed equity investments

-2,4 %

10,3 %

Private Equity investments

4,5 %

18,6 %

Other investments

Real Estate funds

1,8 %

9,5 %

Infrastructure funds

7,9 %

11,7 %

Hedge funds

-2,3 %

2,5 %


Pension contribution income, MEUR


1 659

Transfer to state budget, MEUR


2 263

Net contribution income, MEUR



Pension liability, MEUR


95 700

Funding ratio


19 %

Further information:

Inquiries: CEO Timo Viherkenttä tel.: +358 9 2515 7010.

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. The market value of the Fund’s investment portfolio stood at EUR 17.9 billion at the end of June 2016.

All figures presented in this interim report are preliminary and unaudited.