Finnish pension investors knocked out strong returns last year, but long-term returns have been weaker than in comparison.
Swedish people In recent years, pension companies have clearly outperformed their Finnish counterparts in investment returns. The case emerges from the Finnish Center for Pensions’ (ETK) international investment return comparison, which involved 24 pension investors.
The last two years have been excellent for investors, as both stock indices and the fixed income market have developed favorably. The rise in the market last year was also reflected in the income of pension companies. Of the companies participating in the study, the best-performing Swedish pension fund, AP6, returned the most, with investments of as much as 46.2 per cent last year.
The Danish ATP pension company was the weakest in the comparison. Its investments were down 1.8 percent last year.
The differences in returns do not directly reflect the successful investment choices of these pension companies, but above all describe the differences in risk-taking. The best-performing AP6’s investment portfolio consisted entirely of equities, while the low-performing ATP focused mainly on fixed income investments.
In Finnish pension companies, investments are typically divided between about half of equity investments and other investments. Compared to foreign pension companies that have invested in a similar type of diversification, Finnish companies performed reasonably well last year.
In comparison, the returns of Elo, Ilmarinen, Veritas and Varma were between 12 and 16 per cent last year, which was in line with international comparisons. The best performer was Varma, whose investments returned 16 percent last year. According to an ETK study, it was the best return reading among its peers.
“Last year was record-breaking for investors. The last similar returns were seen after the financial crisis, when the stock markets recovered, ”Varma’s CEO Risto Murto says.
Last year, Varma’s income was boosted especially by unlisted equity investments, which returned almost 50 percent to the pension company.
“For them, the return was exceptional. It is not realistic to expect some good returns in a normal year, ”says Murto.
The comparison focused on real income, ie income has taken into account the effect of inflation.
If the profit history of Finnish companies is extended to the previous 10 years, the result will look slower. In 2011–2021, the income of Finnish pension companies was lower than in all its foreign comparisons.
The returns of Finnish pension companies look even weaker when compared to buffer funds, which can take more risk in their investment activities. For example, the Swedish AP6, AP4 and the Norwegian SPU achieved an annual return of more than 10 per cent over the past 10 years, while the Finnish companies’ return was close to 6 per cent.
Murto is satisfied with Varma’s investment returns over the past decade, although the company’s annual return of 5.9 per cent is lower than many foreign comparators, according to an ETK study.
According to Murron, the differences may be partly explained by differences in the regulation of different pension schemes. For example, the solvency regulation of the Finnish pension system may affect the risk-taking capacity of domestic pension companies.
“The current regulations mean that when the market crisis strikes, many pension companies will have to protect their solvency and will not be able to buy shares at declining prices, for example.”
Murto points out that many pension companies often invest in the domestic market of that company. For example, the investments of Finnish pension companies depend on the development of Finnish listed companies. The emphasis on Finland has paid off in recent years.
“The returns of large Finnish companies have been better than in many other European stock markets, but the Swedish stock exchange has also developed strongly in recent years.”
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