2002 was the year asset liability management became the hot topic in Finland in the light of difficult markets and the need to meet tight solvency regulations.
While the investment trends that became apparent at the time of the euro introduction – the shift to equities and increased foreign exposure – the focus clearly moved to issues of risk management and budgeting.
On the fixed income side, the country’s pension foundations are still moving into Europe and seeking diversification through different sectors without exposing themselves to foreign currency risk.
Corporate bond investment, both in Europe and the US, is also figuring in the strategic outlook of pension funds in a bid to boost returns.
In equities, domestic allocations continue to fall as money is directed into European and global mandates. These allocation shifts have been gradual, however. Domestic equity and fixed income markets continue to be the bedrock of institutional portfolios.
As does real estate, which still represents between 15–20% of institutional assets and cash/money market instruments, which can garner upwards of 15% of a fund’s exposure.
Private equity has also started to appear on the radar, with some institutions placing 3–4% in specialist venture vehicles. Hedge funds, nonetheless, have yet to make a real impression on the market, due to both the difficult markets and solvency and accounting constraints.
On the legislative side, the ruling by the European Court of Justice on the Finnish Danner case in October 2002, has had reverberations in the more recent Swedish Skandia/Ramstedt case. In both the ECJ struck down national restrictions.
The Danner case concerned a German doctor who moved to Finland and continued to contribute to his German pension scheme. Finland refused the deduction. The ECJ ruled that Article 49 of the EC Treaty (on the freedom to provide services) precluded Finland from disallowing the deductibility if it did not at the same time preclude the taxation of the benefits paid by foreign pension providers.
And the impact of the Danner case looks likely to be more widely felt than that of the pan-European Pensions Directive in Finland.

As Hely Salomaa, director general at the Finnish Pension Insurance Supervisory Authority in Helsinki, notes, the country’s TEL first-pillar system also covers most of the occupational pensions rights of Finns, and as a hybrid national pensions system will not be affected by the directive.
Finland does, however, contain voluntary pension schemes that cover retirement arrangements above the guarantee of the TEL system, although as Salomaa points out they are small in size, meaning that the influence of the directive will be minimal on Finnish pensions as a whole.
“The role of those pension schemes is not very significant because they only cover more than 6% of funded pension liabilities and in that sense the role of the directive is not that significant in Finland.
“Of course there will be a slight impact on these voluntary schemes and the Finnish Ministry of Social Affairs and Health is currently taking care of the drafting of legislation and dealing with the implementation problems concerning the directive. Of course there will be issues concerning the running of pension funds, but I can’t say what the impact will be at the moment though.”
Salomaa notes that Finnish investment restrictions, while not the same as for the EU life directive, are quite similar. This could be one area where the EU directive will have an impact.
Salomaa says there is no indication yet when the Ministry of Social Affairs and Health will publish its report on the implications for the directive in Finland.