Finnish pensions insurer Varma has reported investment returns of 6.1% in the first nine months of this year, saying fixed income, hedge fund returns and a stronger dollar helped boost overall gains.

In its interim report for January to September, Varma said the value of its investments increased to €39.9bn from €36.9bn in the same period a year before, while solvency capital expanded to 35% of technical provisions, from 29.9%.

The 6.1% overall investment return is at the same level of that reported a year earlier.

Varma CIO Reima Rytsölä said: “Fixed income investments, hedge fund investments and the strengthening dollar improved our investment result.”

The return on equity investments halved to 7.5% from 14.9%, Varma reported, adding that the long-standing rise in share prices had been followed by a downturn after the summer. 

Fixed income investments returned 4.6% between January and September, higher than the 0.8% reported in the same period in 2013.

Real estate produced a 2.9% return, up from 1.3%, but Varma said this had been burdened by write-downs in the domestic real estate portfolio. 

It said the 8.6% return on ‘other investments’ – which includes hedge funds and commodities – offset the fall in equity prices, with hedge fund investments alone returning 8%, up from 6.4% in the first nine months of 2013.

“We increased the weight of hedge fund investments in our portfolio in the first half of the year by roughly 4% in response to the low interest rate level and uncertainty in the equity market,” Rytsölä said.

Looking ahead, Varma said the global economic situation appeared uncertain and rather gloomy.

“Right now, the biggest headache for investors is the lack of alternatives,” Rytsölä said.

“Share prices have been rising for a long time, and we are aware of the risks associated with that. 

“On the other hand, the low interest-rate level and the negative real interest rates on government bonds are not exactly appealing to investors.”

Meanwhile, Elo – the Finnish mutual employment pension insurer formed in January from Pension Fennia and LocalTapiola Pension – said its investment operations made a 4.9% return between January and September.

The new company did not provide comparable figures for January to September 2013.

At the end of September 2014, the total value of investments was €19.44bn, while the solvency ratio was 26.4% of technical provisions.

The company said it continued with the portfolio weighting adjustments to its fixed income and equity investments started in the first half of the year.

Within equities, geographical weightings were changed by increasing investments in the US, while in fixed income, emerging market investments were scaled back following good performance.

Hanna Hiidenpalo, director and CIO at Elo, said: “One of the most significant trends in the last few months was the considerable appreciation of the dollar, which also supported Elo’s investment returns.”

Equities as a whole returned 7.3% over the nine-month period, while non-listed investments returned 9.7% and private equity 15.4%.

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