Finland’s Osuuspankien El kekassa (the pension fund of the co-operative banks) operates as a basic pension institute for the employees of the co-operative banking group – (a pension institute administering TEL employment pensions).
At the end of 2000, El kekassa comprised 356 participating employers with a total of 8,739 employees with contracts based on TEL (the employees pension act). The total insurance liability at the end of 2000 was e500m, and the market value of the investments was e661m.
In 1999, the management of El kekassa’s investment activities was reorganised. The investment operations of the companies engaged in the OKO Bank Group’s insurance activities – Osuuspankien El kekassa, the pension trust of the co-operative banks, the life insurance company Aurum and the mutual insurance company of the co-operative banks (OVY) – were concentrated in one investment organisation operating inside El kekassa. The total market value of the companies’ investment assets is approximately e2.5bn.
The basic allocation of investments and the corresponding reference indices are specified in the investment plan of pension institutes. Indices are chosen with an emphasis on transparency and investibility, ie the supply of indexed products – funds and derivatives.
The investment plan is updated annually. In recent years investments in Finnish stocks and bonds have been greatly reduced, while those in the euro countries, the UK, the US and Japan, have been increased.
In the basic allocation plan for 2001, foreign stocks already totalled approximately 50% of all stock investments – whereas in 2000 Finnish stocks had exceeded 80% of the allocation. In addition the 2001 investment plan includes a new asset class – alternative investments, which in addition to capital investment funds and hedge funds, include various structured products.
The basic allocation is under constant development. During 2001 real estate investment objectives are being evaluated in consideration of portfolio theory. To that end a consulting agreement was signed with Aberdeen Celexa, the real estate company.
The fund’s chief investment officer (CIO) is responsible for investments (main category real estate investments) and an investment analyst works under his supervision.
A risk management officer reports directly to the general manager, but in practice works closely with the investment unit.
The board of directors approves the annual investment plan, which defines the objectives, investment principles (basic allocation, expected risk and return) and objects of investment as well as their limitations.
The investment plan also takes a stand on the selection of asset managers and risk and earnings reporting.
During the year, the chief investment officer and the investment committee may depart from the investment plan within certain predetermined limits. Strategic changes in allocation are designed to take advantage of market movements and to fine-tune the risk levels of total investments. The goal of the fund’s investment activities is to maintain as low a level of volatility as possible.
All allocation decisions within the limits of the investment plan are made by the CIO or the investment committee. External asset managers have no combined mandates.
At present, one third of the fund’s liquid portfolio is actively managed. The remaining assets are mainly managed via index funds. The portion of passive investments is different for different asset types. Almost all of the investments in euro stocks as well as circa 50% of the US and 30% of the UK stock investments are indexed, while all Finnish and Japanese stock portfolios contain a moderate tracking error (3–6%).
The biggest active risk component within the investments in interest-bearing securities is the credit risk investments, which comprise some 25% of the interest-bearing assets. The level of active risk of the liquid assets (predicted tracking error) has this year varied between 1–1.7%. Internally managed direct investments comprise approximately 50% of the liquid portfolio.
At the beginning of 2002 the fund plans to implement Barra Total Risk software in a bid to include all assets in the same portfolio planning and risk management application.
For efficiency reasons, the fund co-operates with the group when selecting asset managers, although there is no obligation to use group services. Mandates are always focused on certain markets. The entire European and a part of the Finnish stock and interest portfolio is managed by Opstock, an asset management company of the OKO Bank Group.
In terms of return the fund seeks to maintain its liability cover rate in line with the upper half of the target lone laid down by the authorities. Good solvency guarantees that the funds and the system may be credited every year with a minimum return (calculated based on 5.75% interest), and that in the long run investments earn significantly more than this level of return which is determined annually.

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