Finland’s largest pension fund, the local authority provider Keva, has reported a 15.8% return on its investment portfolio for last year, singling out its private equity work in particular as a beacon of success in 2021.
Reporting preliminary financial results for 2021, the €66.8bn Helsinki-based pension fund said its private equity portfolio, including unlisted equities, had generated a 48.3% return, with private equity alone responsible for a 51.4% gain in the year.
Jaakko Kiander, Keva’s chief executive officer, said: “Investment performance was exceptionally good. It was driven by strong growth in global stock markets and successful allocation choices.”
Keva’s 2021 return was roughly in line with the 15.3% return posted last week by Ilmarinen, the largest of the Finnish pension providers operating on the private sector side of occupational pension provision in the Nordic country, but lower than Varma’s 18.5% return.
Ari Huotari, chief investment officer at Keva, said in the institution’s results announcement, which was released on Thursday: “The good return on private equity investments is the result of systematic work.”
The private equity portfolio had been built up since the 1990s, he said, with its average return over the past 10 years now standing at 17.2%.
Keva’s 2021 return for private equity had been driven by strong economic growth, the “very good” financial development of investees, and a record number of divestments, Huotari said, adding that on top of this, valuation levels were up and there was a strong sense of optimism in the market.
Keva said its private equity team, which it descrived as small and cohesive, had “boldly developed investment operations and challenged old business models”.
The team’s leader, senior portfolio manager Markus Pauli, said: “We now have a good quality private equity investment portfolio, which withstands various market conditions and which we can continue to expect to perform well.”
Private equity and unlisted equities made up a 16% slice of Keva’s portfolio at the end of the year – putting the value of this sub-portfolio at €10.7bn, according to IPE’s calculation.
This compares to 35.8% weighting for listed equities and the same for fixed income investments, including the impact of derivatives – all in terms of risk-based distribution, according to the pension fund.
After private equity, Keva’s best performing assets in 2021 were listed equities, generating a 19.9% return, hedge funds with a 17.3% return and real estate with a 9.6% gain. Fixed income investments ended the year with a 1.4% return, according to the announcement.
Huotari said 2022 was marked by exceptional uncertainty, citing the geopolitical situation in Europe as well as the effects of global inflation on the actions of central banks.
“Nor should it be forgotten that earlier actions by central banks have inflated risky markets to record levels,” the CIO said.
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