The State Pension Fund of Finland (VER) delivered double-digit returns from its hedge fund portfolio in both 2024 and 2025, and entered the second half of 2026 on a strong footing after gaining 6.9 percent in the first six months. However, heightened market volatility in the third quarter eroded some of those gains, leaving the portfolio up 6.2 percent for the first nine months of the year. Quantitative and trend-following CTA strategies were the strongest performers during the quarter.
At €1.1 billion, hedge funds accounted for 4.2 percent of VER’s portfolio at mid-year, the smallest allocation among Finland’s largest institutional investors. Despite its relatively modest weight, the portfolio has delivered consistently strong returns, gaining 11.3 percent in 2025 following a 10.9 percent return in 2024. Its annualized return over the past five years stands at 7.4 percent. While the portfolio extended its strong performance into the first half of 2026, returns edged down slightly in the third quarter amid heightened market volatility.
“For hedge funds, the third quarter of the year was characterized by a highly volatile market environment,” the VER investment team writes. “July saw a sharp rotation away from the winners of the first half of the year, particularly in the artificial intelligence and semiconductor sectors.” Markets subsequently stabilized, but a sharp rise in interest rates in September once again widened the dispersion of returns across funds.
“For hedge funds, the third quarter of the year was characterized by a highly volatile market environment. July saw a sharp rotation away from the winners of the first half of the year…”
Quantitative and trend-following CTA strategies were the strongest contributors during the quarter, recovering from a more challenging second quarter. “In the third quarter, the portfolio’s quantitative and CTA strategies performed best, having benefited in particular from strong trends in the fixed income, currency and commodities markets,” the team says. Asian-focused funds, by contrast, faced the greatest challenges as the strong upward trend associated with artificial intelligence faded in July, weighing on their returns.
“In the third quarter, the portfolio’s quantitative and CTA strategies performed best, having benefited in particular from strong trends in the fixed income, currency and commodities markets.”
VER’s broader investment portfolio delivered solid results during the first nine months of 2026. Its €27.1 billion portfolio generated a 7.8 percent return on investments, supported by particularly strong performance from listed equities, which returned 17.7 percent. Liquid fixed-income investments, however, posted a negative return of 0.3 percent over the same period.
Private market investments delivered mixed results. Other fixed-income investments, including private credit funds and direct lending to companies, returned 4.4 percent through the end of September. Private credit funds gained 4.2 percent, while direct lending investments returned 5.1 percent. Private equity investments generated a 3.7 percent return, while infrastructure funds advanced 11.0 percent and unlisted equities gained 11.9 percent. Unlisted real estate funds delivered a more modest return of 1.2 percent over the first nine months of the year.
