Interim report of the State Pension Fund 1 January–31 March 2016

Published 2016-04-28 at 13:56

The return on the assets invested by the State Pension Fund (VER) was -0.8 per cent during 1 January–31 March 2016. VER’s average rate of return is 5.5 per cent for the past five years and 4.1 per cent for the past 10 years.

At the end of March 2016, the market value of the Fund’s assets amounted to EUR 17.6 billion (EUR 17.9 billion on 31 December 2015). At the end of March, fixed income instruments accounted for 47.9 per cent, equities for 42.8 per cent and other investments for 8.0 per cent of VER’s all investments.

  • During the first quarter, the markets were ruffled by speculations about three things: growth, China and central banks. The first few weeks of the year in particular saw a historically weak equities market. Even though the markets recovered quickly, the return on equities remained in the red, says Managing Director Timo Viherkenttä.

  • Fixed income instruments proved a bright spot with a two per cent return despite the extremely low interest rates at the beginning of the year. The recovery of the equities market that started in February was sustained into the second quarter, he continues.

The pension contributions received by VER during the first quarter are estimated at EUR 356 million. By the end of March 2016, the State Pension Fund had transferred to the government budget a total of EUR 446 million. Under the Act on the State Pension Fund, 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.

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 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 was 1.9 per cent.

From the beginning of the year until early February, both fixed income and equities markets were extremely jittery. As at the end of last year, riskier asset classes continued to be burdened by concerns about the emerging economies, the fall in the price of oil and the uncertainties surrounding the actions of the European Central Bank (ECB) and the U.S. Federal Reserve (FED).

However, since mid-February the risk sentiment has picked up considerably as a result of rising oil and raw material prices. Additionally, the FED indicated in March that it planned to increase the U.S. interest rate twice this year, when still in December it was assumed that it would do so four times. The FED’s dovish statements weakened the U.S. dollar, also relative to the currencies of the emerging economies. The movement in raw material prices and the weakening dollar gave a boost to emerging markets in particular.

The ECB’s decision in March to lower its rate, increase asset purchases and extend them to euro-denominated investment grade company bonds buttressed the corporate bond market and eurozone government bonds.

Other fixed-income investments

Other fixed-income investments consist of investments in private credit funds.

Private credit investments gave a return of -0.1 per cent.

The market conditions for private credit funds remained favourable in Europe. The banks’ continued reluctance to provide financing for small and medium-sized enterprises has compelled them to seek other sources of funding. The return was close to zero because the first-quarter returns are updated in the second quarter.


Listed equities

Listed equities gave a return of -4.2 per cent.

Global equities got off to a gloomy start in 2016. Share prices started falling on a broad front right after the end of 2015 and continued to plummet until almost mid-February. Since then, the equities market has picked up considerably, but by the end of the second quarter the return on the equities portfolio still remained negative.

As no new causes for such a sharp fall emerged during the first few months of the year, the sources of nervousness were very much the same as earlier. The state of the Chinese economy continues to bring a lot of questions and the slowdown in growth has also been reflected in raw material prices over the past few years. Additionally, the risk sentiment has been affected by the actions of central banks. Whether the FED will be able to implement the implied hikes in the U.S. interest rate remains to be seen.

Other equity investments

VER’s other equity investments consist mainly of investments in private equity funds and unlisted stock. Investments in listed real estate funds also fall into this category.

Private equity investments returned 2.7 per cent and unlisted equities 3.8 per cent. The return on listed real estate funds was 0.7 per cent.

With private equity funds, the rates of return still reflect the performance at the end of the previous year when the strong equities markets were seen in the valuation levels. The returns on unlisted equities reflect the positive development 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 -0.1 per cent while infrastructure investments yielded 2.6 per cent.

With real estate and infrastructure investments, the first few months of the year were spent in anticipation of future earnings. No significant changes took place in the real estate portfolio during the first quarter. In infrastructure investments, a single successful exit from a portfolio company accounted for a sizeable percentage of the aggregate return.

Hedge funds returned -2.3 per cent. The best performance during the first quarter was achieved with CTA and macro strategies, which were highly successful particularly in January and February. For funds pursuing equities strategies the period was difficult. Problems were caused by a significant shift in sector weights from momentum to value stocks and resulting liquidity issues.

Risk premiums yielded a return of 7.0 per cent. Of the risk premiums, the best performance was put in by carry strategies focusing on commodities and momentum strategies in the fixed income markets.


  31.3.2016 31.12.2015
Investments, MEUR (market value) 17 636 17 853
Fixed-income investments 8 442 8 747
Equity investments 7 556 7 687
Other investments 1 415 1 348
Breakdown of the investment portfolio 
Fixed-income investments 47,9 % 49,0 %
Equity investments 42,8 % 43,1 %
Other investments 8,0 % 7,6 %
  1.1.-31.3.2016 1.1.-31.12.2015
Return on investment -0,8 % 4,9 %
Fixed-income investments
Liquid fixed-income investments 1,9 % 0,2 %
Other fixed-income investments -0,1 % 7,1 %
Equity investments
Listed equity investments -4,2 % 10,3 %
Other equity investments 2,8 % 18,6 %
Other investments
Real Estate funds -0,1 % 9,5 %
Infrastructure funds 2,6 % 11,7 %
Hedge funds -2,3 % 2,5 %
Pension contribution income, MEUR 356 1 659
Transfer to state budget, MEUR 446 2 263
Net contribution income, MEUR -90 -604
Pension liability, MEUR   95 700
Funding ratio   19 %

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


CEO Timo Viherkenttä tel.: +358 (0)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. At the end of March 2016, the market value of the Fund’s investment portfolio stood at EUR 17.6 billion.