FINLAND - Investments in the €12bn Finnish state pension fund VER will continue to be driven mainly by "traditional risk limitations", despite the growth in recent years of its real estate and infrastructure portfolios.
In a presentation given at a recent London conference on sovereign wealth management, VER managing director Timo Löyttyniemi said the scheme's investments were still driven mainly by the need to control risk.
The scheme's private equity allocation grew from 180.7m mid-2006 to 291.6m mid-2007. At the same time, the real estate portfolio grew from €240.4m to €339.1m. Yet combined alternatives last year made up only 6% of the scheme's bond-dominated portfolio, against a 10% real estate target.
VER's exclusively Eurozone infrastructure portfolio spans the risk spectrum and this infrastructure portfolio, which constitutes 20% of its ‘other assets' allocation, comprises four different private funds - one primary infrastructure fund, which invests in new developments; two secondary funds, which acquire existing structures; and one ‘broad-based' fund, which invests in assets in various phases of development.
All infrastructure investments have been indirect to date, although the scheme does not rule out future direct investment.
Unlike other public pension funds, such as Canada's CPPIB and the Irish reserve fund, which have volubly distinguished themselves from sovereign wealth funds by separating their investment functions, Löyttyniemi was clear about VER's dual role.
"VER is an off-budget fund by means of which the state prepares for financing pensions payable in the future…and an investment organisation with the task of managing and investing the assets entrusted to it," he said.
Clarification of the finance ministry's supervisory role in 2006 made it the de facto regulator of the scheme's administration, financing and investments.