VER, the state pension fund of Finland, has outlined plans to increase its alternatives allocation after seeing a return of 7.4 percent in the first half of 2007.
The €11.4 billion ($15.6 billion) pension fund saw an overall return of 3.4 percent for the six months to March. Its equity holdings, which constitute 41 percent of the portfolio, were the best performers, returning 9.3 percent thanks largely to the buoyant Nordic markets.
Alternative investments, which include its private equity, hedge and real estate holdings, returned 7.4 percent, with indirect real estate and absolute return the most successful. Their total value has now increased to €568 million, equivalent to about 5 percent of the portfolio. With additional commitments, the figure is nearer 8 percent.
VER said it was hoping to get this nearer to the 10 percent limit imposed on the fund by the government. “During the remaining half of the year, the share of VER’s other investments and investment commitments will be increased to around 9 per cent of total investments. The structure of our investment portfolio is close to the limits set by the Ministry of Finance,” said managing director Timo Löyttyniemi.
The additional capital will be switched from the fund’s fixed income holdings, which currently account for 54 percent of the portfolio In common with many big pension funds, VER saw the value of these holdings go backwards in the first half of the year amid difficult credit market conditions, with a return of -1.2 percent. However, it said it had managed to offset this to some extent by increasing its money market allocation from 5% to 20%, in order to reduce interest rate risk.