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Varma’s Best Year

Report: Systematic Strategies

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Stockholm (HedgeNordic) – Finnish pension fund Varma saw its investment portfolio achieve the highest annual return in its history last year. Bolstered by private equity, public equities and hedge funds, Varma’s investment portfolio reached a return of 18.5 percent in 2021 to add €9.3 billion in asset gains, with the value of Varma’s investments growing to €59 billion at the end of last year from about €50 billion at the end of 2020.

“The second Covid-19 year was surprisingly good for the Finnish earnings-related pension system,” says Varma’s President and CEO, Risto Murto (pictured). “For Varma, 2021 was unprecedented, with record-high investment returns,” adds Murto. “Last year was exceptionally favourable for investors,” elaborates Varma’s CIO, Reima Rytsölä. “The strategic allocation of our investment portfolio worked particularly well. The asset classes that showed weak performance in 2020 were our strengths last year,” he continues. “It goes to show that investment calls for resilience and perseverance.”

“For Varma, 2021 was unprecedented, with record-high investment returns.”

Varma’s allocation to private equity generated the highest return in 2021 at 49.6 percent (compared to 7.8 percent in 2020), followed by unlisted equities at 26.3 percent (8.6 percent), listed equities at 26.4 percent (5.2 percent) and hedge funds. Varma’s hedge fund investments, which accounted for about 16 percent of the pension fund’s €59 billion-investment portfolio at the end of 2021, generated a return of 15.3 percent last year, compared to the previous year’s loss of 1 percent. Real estate investments generated a return of 5.9 percent (2.0 percent), and fixed-income investments 1.9 percent (1.9 percent in 2020).

“The Covid-19 pandemic has not sparked such a broad economic downturn as the financial crisis did more than 10 years ago.”

“The Covid-19 pandemic has not sparked such a broad economic downturn as the financial crisis did more than 10 years ago,” comments CEO Risto Murto. “On the contrary, last year was marked by a classic upswing, despite the pandemic.” Varma’s CIO Reima Rytsölä argues that the investment market outlook “boils down to how well the markets will be able to cope with the future tightening of monetary policies.” According to Rytsölä, “the Fed is feeling a growing urgency to raise the benchmark rate, and the fear is that a delay will result in an excessive hike. This scenario puts pressure on equities’ high valuation levels.”

 

Picture courtesy of Varma.

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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