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Decreasing stock prices and increasing interest rates have taken their toll on Finnish pension funds over the first six months of 2006.
The investments of the €8.3bn State Pension Fund (VER) yielded a return of 0 per cent over the first six months of 2006. This was a clear reduction in comparison with the results of mid-2005, when VER’s portfolio yielded an impressive 8.2 per cent.
Timo Löyttyniemi, managing director at VER, told nrpn that he does not find the zero returns particularly worrying. “This result reflects the general development of global markets over the past six months and is not going to have an impact on our overall strategy.
“Although the performance of our investments weakened slightly over the first six months of the year, we must not ignore the fact that over the past two months our performance has started improving,” he says.
At Etera, the €5.45bn mutual pension insurance company, investments pulled in a return of 0.4 per cent. Of all the asset classes, equities performed the best and yielded 3.2 per cent. Bonds, on the other hand, yielded a disappointing -2.2 per cent.
Etera’s CIO Mika Pesonen, who joined the fund from VER, points out that weaker returns were a consistent trend in most European pension funds over the first half of 2006.
“The slowdown of asset growth was also clear at a few Dutch funds and this development was directly connected to the increase in interest rates. However, the previous years have really been extraordinarily good and, in the long term, quieter periods like the one we had over the first six months of 2006 are very normal. It is therefore not helpful simply to compare figures from one year to another, ” he says.
Matti Vuoria, president and CEO, of €25.3bn Varma, the country’s largest mutual pension insurance company, agrees.
“International interest rates went up significantly and this eroded the value of fixed-income investments. Our equity investments yielded a positive return, even though share prices took a tumble between May and June after three years of strong rises,” he notes.
Varma investments pulled in 1.3 per cent over the first six months of 2006, compared to 6.7 per cent in 2005. Of all its holdings, equities, including private equity and hedge funds, yielded the best returns at 4.5 per cent. Bonds yielded the worst returns at –1.8 per cent.
RC
