The EUR8.2 billion Finnish State Pension Fund (VER) is to invest approximately 10% of its portfolio in alternative asset classes over the coming four to five years, according to European Pensions & Investment Magazine.
At present, the funds portfolio is divided between bonds (60%) and equities (40%).
VER has also minor holdings in hedge funds and private equity.Timo Loyttyniemi, managing director at VER, told epn that the motivation behind his funds decision to expand its alternatives portfolio was the increased need to diversify and improve the funds risk profile.
Our plan is to expand our alternatives portfolio to include unlisted real estate funds, private equity funds and absolute return funds in search of improved diversification, he said.
At VER, Loyttyniemi said, investments in property will focus mainly on European property markets, but might also offer limited exposure to domestic property.
We have decided to include unlisted real estate funds in our portfolio because we think they offer the best opportunities for diversification in property markets,” he added. “Unlike many other Finnish pension funds, we do not have any direct property holdings.”
Private equity funds, on the other hand, have caught VERs eye because of their healthy returns in recent years. We have had minor exposure also to the infrastructure sector since late 2004 and expect the sector to develop further in the coming years, said Mr Loyttyniemi.
Absolute return funds will also play a role in VERs portfolio in the future.
Nevertheless, we have decided to take a relatively selective approach to hedge funds, Mr Loyttyniemi added. In 2005 the investment portfolio of VER yielded a total return of 14.9%. Assets under management increased by EUR1.3 billion during the year. The return from equity investments was 30.8%, the funds bond portfolio yielded a return of 5.4%.