The first half of 2025 was far from smooth sailing for investors, hedge fund managers included. Varma, Finland’s largest hedge fund investor, nevertheless reported that its hedge fund portfolio performed “relatively consistently” amid turbulence in listed markets, delivering a 3.2 percent return. The result outpaced Varma’s fixed-income, real estate and equity investments but lagged behind the returns from listed equities.
Varma, with €10.7 billion – or 17 percent of its €64.9 billion investment portfolio – allocated to hedge funds, recorded a 3.2 percent return in the first half of 2025. This was down from 6.1 percent in the same period last year. “Hedge funds performed relatively consistently, and the turbulence on the listed market had only a mild impact on the asset class’s performance,” Varma notes in its half-year update. “Due to the low duration, interest rate changes also had only a limited impact on hedge fund returns.”
“Hedge funds performed relatively consistently, and the turbulence on the listed market had only a mild impact on the asset class’s performance.”
Varma’s overall investment portfolio delivered a 1.7 percent return in the first half of 2025. Equity investments contributed just 1.0 percent, weighed down by significant volatility in the second quarter. Listed equities gained 3.6 percent, driven by a strong 15.2 percent return from Finnish stocks. “Following a correction in April, US equities rebounded strongly; however, the pronounced weakening of the US dollar kept the euro-denominated return on them negative in the first half of the year,” writes the Varma team. “The return on European equities was modest, and equity performance in other areas was inconsistent.” Private equity fared worse, posting a negative return of 4.1 percent, largely due to the weaker US dollar.
In fixed income, “uncertainty about trade, financial and monetary policies swayed interest rates globally in the first half of the year.” Rates rose early in the year but eased considerably over the summer. “Government bonds were among the top performers among bonds, with emerging market bonds in the lead,” according to the team at Varma. “Corporate bond credit spreads widened sharply in April but quickly narrowed again. This recovery, along with falling interest rates, supported the returns on corporate bonds. The return on loan receivables was modest in the first half of the year.”
Varma’s hedge fund investments performed relatively consistently despite turbulence in listed markets during the first half of the year. As Finland’s largest hedge fund investor, Varma saw its hedge funds outperform several of domestic institutional investors. Keva’s hedge fund portfolio, for example, declined 4.6 percent in the first half, while Ilmarinen’s returned 2.1 percent over the same period.
