The first half of 2025 brought a complex market backdrop shaped by shifting macroeconomic trends, tariffs, geopolitical uncertainty, and volatile investor sentiment. Although returns were broadly positive, markets were marked by sharp swings and bouts of volatility, testing institutional investors and fund managers alike. Against this backdrop, the State Pension Fund of Finland’s €1.09 billion hedge fund portfolio delivered a solid 5.0 percent return.
“Hedge funds performed well in the first half of the year, considering the operating environment riddled with uncertainties,” writes the team at the State Pension Fund of Finland (VER). The turbulent conditions proved especially favorable for the portfolio’s volatility fund, which delivered a double-digit return. Quantitative strategies and several Asian funds also contributed positively. By contrast, the fund’s allocation to a trend-following CTA was the only clear detractor, mirroring broader struggles in the CTA space as the absence of sustained market trends weighed on performance.
“Hedge funds performed well in the first half of the year, considering the operating environment riddled with uncertainties.”
The State Pension Fund’s portfolio of hedge funds and systematic strategies returned 5.0 percent in the first half of this year, extending the strong performance seen last year and in recent years. In 2024, VER’s hedge fund allocation gained 10.9 percent, while the five-year annualized return now stands at 7.3 percent. This performance compares favorably with several other asset classes in the pension fund’s portfolio: listed fixed income returned 1.4 percent over the past five years, other fixed-income strategies – including private credit and direct lending – delivered 7.0 percent, and real estate funds 1.2 percent. However, hedge funds have lagged the stronger five-year returns generated by listed equities, private equity, and infrastructure.
The State Pension Fund of Finland is a government-run buffer fund that helps stabilize the financing of state pensions and supports Finland’s public finances over the long term. At mid-2025, VER managed a portfolio of €24.5 billion, with €1.09 billion, or 4.4 percent, allocated to hedge funds. This allocation has been a meaningful contributor to the fund’s overall returns.
