​Varma neck and neck with Ilmarinen as hedge funds pay off in H1

Finnish pension insurance company Varma reported a 4.3% loss on its investments for the first half of this year, but the repeated superiority of returns to its slightly larger rival Ilmarinen has now brought the two pension giants neck and neck in terms of total assets.

In its interim report released this morning, Helsinki-based Varma revealed its assets under management decreased to €56.7bn by the end of June from €59.0bn on 1 January, after gains on hedge funds and private equity - which together make up a third of its overall portfolio - saved it from steeper losses amid falling stock markets.

On Tuesday, Ilmarinen reported its assets had diminished to €56.7bn after a 6.2% first-half 2022 investment loss.

For years Varma was the largest of the pension insurance companies in Finland’s earnings-related pension system, before being toppled from the number one spot when the second-biggest, Ilmarinen, merged with smaller pension insurer Etera at the beginning of 2018.

Markus Aho, Varma’s new CIO who started the role on 1 June, said: “Early in the year, the investment markets offered few places to hide, with the returns on both fixed income and equity investments coming down.”

In the second quarter, he said, concerns over slowing economic growth spread to the global markets, which was reflected in the returns.

“The returns on unlisted investments, such as private equity investments, hedge funds and real estate and infrastructure investments, compensated for the weak performance of the listed equity and fixed income markets,” Aho said, adding that Varma had also benefited from the appreciation of the dollar.

While listed equities ended the six-month period with a negative return of 8.2%, Varma’s private equity investments returned 12.1% and unlisted equities generated a positive 8.5%, the firm reported.

Fixed-income resulted in a 4.6% loss, but hedge funds produced a positive 4.5% return and real estate returned 3.8%.

Varma has 33% of its portfolio in private equity and hedge funds combined - a slightly higher exposure to these two asset types than Ilmarinen’s, which amounts to just under 30%.

Varma said that as stock prices fell in the second quarter, it had transferred investments from listed equities to money market investments.

Due to that tactical switch, the proportion of listed equities fell by almost four percentage points to 30.2 per cent of the investment portfolio from the end of March to the end of June, Varma said.

The firm said its solvency remained at a strong level. In relation to technical provisions, Varma’s solvency dipped to 134.5% by the end of June from 139.4% at the beginning of the year, the report showed.

Ilmarinen reported an end-June 129.3% solvency ratio earlier this week.

Varma also beat Ilmarinen on returns in the 2021 full year, posting an 18.5% gain compared to Ilmarinen’s 15.5% return, however the year before, Ilmarinen had prevailed.