HedgeNordic (Stockholm) – Finnish pension insurance company Elo reported a return on investment of €1 billion in the first quarter, representing a 3.3 percent increase on its year-end investment portfolio of €30 billion. Elo’s first-quarter performance reflects “excellent returns” from both listed equities and hedge funds, with its hedge fund portfolio delivering an impressive return of 6.5 percent.
“Elo’s year started strongly with good investment returns, driven by equity investments,” says Carl Pettersson, CEO of Elo. “Listed equities and hedge fund investments generated the highest returns,” writes the Elo team in connection with the release of its first-quarter results. Elo’s equity investments generated a return of 5.1 percent, with listed equities, constituting about one-third of the investment portfolio, generating a return of 7.0 percent. The team attributed the strong performance of equity markets to expectations of monetary policy easing, particularly in the United States, and a significant strengthening of profit growth expectations among technology companies. However, they also observed geographical divergence in equity market returns, with the European, Japanese, and US markets outperforming while returns were more modest in China and negative in Finland.
“Listed equities and hedge fund investments generated the highest returns.”
Elo’s private equity investments, comprising just under 20 percent of the overall portfolio, generated a return of 2.3 percent in the first quarter. Meanwhile, Elo’s hedge fund portfolio delivered the second-highest return in the portfolio at 6.5 percent. Elo had €2.9 billion or 9.5 percent of its €30.9 billion portfolio invested in hedge funds at the end of the first quarter. The pension insurer’s hedge fund investments have consistently performed well in recent years, including during the challenging market conditions of 2022. Following returns of 5.5 percent in 2019, 7.3 percent in 2020, and 8.3 percent in 2021, Elo’s hedge fund portfolio achieved a return of 2.3 percent in 2022 before reaching 4.8 percent in 2023. The portfolio’s strong performance continued into 2024 with a return of 6.5 percent in the first quarter alone.
As previously explained by Mika Jaatinen, Portfolio Manager of Hedge Fund Investments at Elo, the primary advantage of investing in hedge funds lies in the diversification benefit from adding an asset class that offers uncorrelated returns relative to traditional equity and fixed-income investments. “Hedge funds offer investors exposure to a return stream that has low correlation to traditional assets such as stocks and bonds,” Jaatinen told HedgeNordic in 2022. “For us, this low correlation is key,” he emphasized, noting that hedge funds achieve this low correlation through various strategies, including relative value, directional macro, highly complex quant, or opportunistic event-driven strategies. With their diverse nature, hedge funds contribute to portfolio risk reduction and generate returns for the Finnish pension insurance company.
“Hedge funds offer investors exposure to a return stream that has low correlation to traditional assets such as stocks and bonds.”
Mika Jaatinen, Portfolio Manager of Hedge Fund Investments at Elo
In other parts of Elo’s portfolio, fixed-income investments generated a return of 0.7 percent in the first quarter, while the return on real estate investments was flat at 0 percent. Elo attributed the negative bond market returns to rising market interest rates, as investors recalibrated their expectations of interest rate cuts in response to persistent inflation and robust economic data. The team also noted that expectations of a recovery in the real estate investment market have been deferred to the end of the year.
