Stockholm (HedgeNordic) – Finland’s largest pension fund Keva saw its hedge fund, private equity, and real estate investments offset some of the losses stemming from fixed-incomed and listed equity investments in 2022. Keva’s hedge fund investments, which accounted for 7.2 percent of its €62 billion investment portfolio at year-end 2022, generated a return of 6.1 percent last year after delivering a return of 17.3 percent in 2021.
The Finnish pension agency responsible for pensions of public sector workers in state, municipal, and state church positions reported a negative return of 7.0 percent for 2022, equivalent to €4.6 billion. Keva’s fixed-income investments delivered a negative return of 11.3 percent in 2022, while the loss from investments in listed equities amounted to 11.4 percent. Of Keva’s investment assets, the best performers were hedge funds, which generated a return of 6.1 percent, private equity investments with a return of 3.1 percent, and real estate investments with an advance of 2.7 percent.
“Russia’s invasion of Ukraine a year ago triggered global inflation, which resulted in the end of a long era of loose monetary policy,” comments Jaakko Kiander, the CEO of Keva. “With inflation came rising interest rates, which in turn led to a decrease in all asset values. This was also reflected in Keva’s investment performance,” says Kiander. Keva’s CIO, Ari Huotari, assesses that the climate will continue to be difficult for investors.
“With inflation came rising interest rates, which in turn led to a decrease in all asset values. This was also reflected in Keva’s investment performance.”
”The year was historically bad on both the equity and fixed-income markets at the same time. Cause for investor comfort was in short supply. Nor am I convinced that this storm has yet passed,” says Huotari. “At the same time, it’s important to remember that, by nature of their mission, pension investors are long-horizon investors. Individual years or periods of a few years do not derail us from performing our mission, i.e. long-term intergenerational fairness in pension funding,” emphasizes Huotari.
Keva’s cumulative capital-weighted real return on investments since funding began in 1988 through the end of 2022 reached 3.7 percent a year. The average real return, excluding capital weighting, over the same period was 4.9 percent. The Finnish pension provider has gradually increased its allocation to hedge funds from under 2.0 percent in 2011 to 7.6 percent at the end of 2018, 6.4 percent at the end of 2021 and 7.8 percent at the end of the third quarter of 2022. The pension fund’s investments in hedge funds increased from under €2 billion in 2013 to €4.8 billion at the end of the third quarter of 2022. Hedge fund investments accounted for 7.2 percent of Keva’s risk-based distribution at year-end 2022.