Finland's VER sees fixed income exposure fall as returns decline year on year

FINLAND – Finland’s State Pension Fund (VER) saw its fixed-income weighting fall markedly in the first half of the year, as equities and other investments increased, after the rapid rise in interest rates at the end of the reporting period.

Fixed-income dwindled as a proportion of VER’s €15bn portfolio to 52.3% at the end of June from 54.6% at the end of December 2012, while equities increased their weighting to 39.2% from 38.4%, according to the fund’s interim report.

The fund’s other investments – which include absolute return and private credit funds – increased in weight to 8.5% from 7.0%.

VER’s total investment return fell sharply in the first half 2013 to 0.6%, compared to the 4.8% generated in the first half of last year.

The market value of investments was €15.4bn at the end of June, little changed from the end of December.

Fixed-income investments made a loss of 2.0% in the January to June 2013 period, during which equities returned 4.3%. Other investments produced 1.6% for the fund.

“Fixed income investments yielded a moderate profit during the first two quarters, but turned negative due to the strong and rapid increase in interest rates in May to June,” VER said in its interim report.

By the end of June, it said, this increase had subsided and the market had shown positive development.

Among other investments, absolute return funds had performed very strongly at the beginning of the year, VER said.

But it added that the “challenges” in the equity and fixed-income investment market started to materialize in the absolute return fund stock portfolio by May, resulting in only a in a modest return by June.

The state fund’s total returns on contributions during the first half amounted to €830m – around the same level as seen in the corresponding period last year.

By the end of June, €840m of VER assets had been transferred to the state budget, the fund said, adding that over the whole of 2013 it would transfer more funds to the state budget than it was expected to make in returns from contributions.