Varma’s return on investments in January–June 2015 stood at 4.3%
The six-month return on Varma’s investments was 4.3%, i.e. EUR 1.7 billion, and their market value stood at EUR 41.9 billion. Solvency capital amounted to EUR 11.0 billion.
“Varma’s solvency remained very strong and its investment returns were at a good level, despite an unsettled second quarter. The concern for pension investors is that growth in Finland’s economy and productivity will come to a halt,” says Varma’s CEO, Risto Murto.
Varma’s return on investments in January–June 2015 was 4.3 (5.0) per cent, and the market value of the investments stood at EUR 41.9 (39.6) billion. The cumulative return on Varma’s investments since the start of the financial crisis in early 2009 is EUR 16.2 billion. Varma’s solvency at the end of June was EUR 11.0 (10.3) billion, i.e. 35.3 (34.9) per cent of the technical provisions.
Challenged by market corrections
The equity and fixed income markets were unsettled in the second quarter of the year.
“The investment market was plagued by a trio of threats: rising interest rates, Greece and China. They have further added to the difficulties in the already challenged investment markets,” says Varma’s CIO Reima Rytsölä.
Varma’s equity investments generated the highest returns, at 8.3 (7.2) per cent. The return on fixed-income investments was slightly positive, at 0.3 (3.4) per cent, even though the prices of eurozone government bonds plummeted. Other asset classes also had positive returns.
“There is an air of anticipation in the investment markets. Greece has been put on the backburner for now, but uncertainty concerning China’s capital markets is raising doubts about the underlying sustainability and pace of growth of the country’s economy,” says Rytsölä.
“The US central bank’s expected interest rate hike in the autumn will add some spice to the markets, which are trying to find their direction,” he adds.
Real estate investments yielded a consistent return of 3.4 (3.2) per cent and other investments (incl. hedge funds) yielded 4.0 (5.2) per cent.
Exchange rate risk returns to the eurozone
Finland continues to face a troubling economic environment and employment situation, and signs of a permanent improvement are nowhere to be seen in companies’ projections. Although the economic situation in the eurozone has stabilised, it cannot withstand continuing crises.
“A major change took place in principle in Finland this summer in relation to the shared currency area of the euro. The exit of a single country, in this case Greece, from the euro is now considered a possibility. From an investor’s point of view, a hidden exchange rate risk has returned within the euro. In Finland’s case, this risk is still very minute, but it’s not nil,” says Murto.
(The figures presented are unaudited figures of the parent company.)
Varma Mutual Pension Insurance Company is the most solvent earnings-related pension company and largest private investor in Finland. The company is responsible for the statutory earnings-related pension cover of some 860,000 people in the private sector. Premiums written totalled EUR 4.3 billion in 2014 and pension payments stood at EUR 5.0 billion. Varma’s investment portfolio amounted to EUR 41.9 billion at the end of June 2015.
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Interim Report (pdf)