Esko Torsti tells Rachel Fixsen how Ilmarinen is intending to increase its property and infrastructure exposure

For Finnish pensions insurance company Ilmarinen, the vast majority of property investments have been, and are still, in the form of direct ownership of Finnish buildings. But its exposure to foreign property markets, both European and further afield, seems likely to gain some ground against its domestic investments in the near future.

Esko Torsti, head of non-listed investments at the €30bn pensions insurer, says the group’s real estate strategy for the next 12 months is to increase the share of property domestically, and especially to boost its share of foreign holdings.

As things stand, around €3bn of Ilmarinen’s €3.5bn real estate investments are held in direct investments with the remaining €500m mainly in the form of foreign fund investments. “On top of that we have listed real estate investments of around €400m,” he says. “We are heavily based on Finland with our direct real estate portfolio. Our indirect portfolio is diversified mainly in Europe, but to some degree also to Asia and the US.”

The overall real estate allocation is 12%. “Returns have been adequate and they compare well from a risk-return perspective,” Torsti says. Direct real estate investments produced a return of 1.2% in the first quarter of 2013, while real estate funds produced 0.3% over the same period.

But while Ilmarinen has had steady returns on its property portfolio in the last 12 months, it has not been immune to market weakness. “Vacancy ratios have increased somewhat with the general market trend,” Torsti notes.

All in all, Ilmarinen owns just over 4,500 dwellings and around 100 commercial, office, warehouse and other properties. A large part of these investments are located in the Helsinki metropolitan area. The pensions firm uses Finnish company Ovenia Oy for all its property maintenance and leasing.

Property is a vital part of Ilmarinen’s overall asset mix because of its low correlation with other asset classes. “It fits in well with a diversified institutional investment portfolio, as it has different portfolio characteristics compared to listed equities or to bonds,” Torsti says.
Infrastructure, too, plays an important role for Ilmarinen. Overall, it has 1-2% of total assets allocated to infrastructure. But Torski says the exact allocation depends on the definition of infrastructure used. “Part of our infrastructure is within our real estate allocation, but the major part is not,” he says.

In addition to increasing its exposure to real estate, Ilmarinen also aims to increase its infrastructure investments in the medium term, concentrating primarily on investment targets in Finland, but also looking at projects in the euro zone.