Monday, September 06, 2004
Finnish Insurer Interest in HFs
Global Money Managementhttp://www.globalmoneymanagement.comSeptember 3, 2004
Finnish Pension Mulls Hedge Fund Increase ----Emma Blackwell
Varma, the largest private sector pension insurer in Finland, with EUR20.3 billion under management, is reviewing whether to increase its 1.5% exposure to hedge funds. "Obviously we have to make a view on prospective returns and risk," said Petri Kuusisto, cio for hedge funds and equity. With only a 1.5% allocation, hedge funds "don't offer much diversification," he pointed out. The hedge fund portfolio includes both single manager funds and funds-of-funds of a variety of styles. No decisions have yet been reached about whether Varma should increase its exposure to single funds, funds-of-funds or both, and whether it would hire new managers or increase incumbents' mandates. The size of a potential increase has yet to be determined.
The pension provider will review its entire investment portfolio starting this autumn, after new president and CEO Matti Vuoria completes his review of Varma's corporate strategy later this month. There is no time table for investment strategy decisions. Varma manages 95% of its assets in house and uses external managers for hedge funds and ex-European equity. Kuusisto does not expect that to change.
Varma started investing in hedge funds in 2002. The hedge fund portfolio has performed well for the last two years--hedge funds produced total returns of 10.5% in 2003 according to Varma's annual report--but this year has been disappointing, with returns of approximately zero. "The whole industry has been struggling with the market environment," Kuusisto observed. There has not been enough market volatility to enable hedge funds to take positions. "Returns are not the key driver of our thinking process," he added.
Before increasing its hedge fund exposure, Varma will calculate how much risk capital the company has available. Hedge funds are classified under Finnish regulation as the riskiest asset class, so pension providers need a high level of solvency to invest in hedge funds. But this should not be too much of a problem for Varma. Its solvency has been "more or less stable since the start of the century," said Kuusisto, thanks to its high allocation to bonds. The asset allocation at the end of June was 52.3% bonds, 5.8 % loans, 2.7% other money market instruments and deposits, 26.5% equity and 12.8% real estate.
Vuoria, who joined Varma at the start of this year as executive v.p., became ceo on June 1. He replaced Paavo Pitkanen, who retired in August.
Finnish Pension Mulls Hedge Fund Increase ----Emma Blackwell
Varma, the largest private sector pension insurer in Finland, with EUR20.3 billion under management, is reviewing whether to increase its 1.5% exposure to hedge funds. "Obviously we have to make a view on prospective returns and risk," said Petri Kuusisto, cio for hedge funds and equity. With only a 1.5% allocation, hedge funds "don't offer much diversification," he pointed out. The hedge fund portfolio includes both single manager funds and funds-of-funds of a variety of styles. No decisions have yet been reached about whether Varma should increase its exposure to single funds, funds-of-funds or both, and whether it would hire new managers or increase incumbents' mandates. The size of a potential increase has yet to be determined.
The pension provider will review its entire investment portfolio starting this autumn, after new president and CEO Matti Vuoria completes his review of Varma's corporate strategy later this month. There is no time table for investment strategy decisions. Varma manages 95% of its assets in house and uses external managers for hedge funds and ex-European equity. Kuusisto does not expect that to change.
Varma started investing in hedge funds in 2002. The hedge fund portfolio has performed well for the last two years--hedge funds produced total returns of 10.5% in 2003 according to Varma's annual report--but this year has been disappointing, with returns of approximately zero. "The whole industry has been struggling with the market environment," Kuusisto observed. There has not been enough market volatility to enable hedge funds to take positions. "Returns are not the key driver of our thinking process," he added.
Before increasing its hedge fund exposure, Varma will calculate how much risk capital the company has available. Hedge funds are classified under Finnish regulation as the riskiest asset class, so pension providers need a high level of solvency to invest in hedge funds. But this should not be too much of a problem for Varma. Its solvency has been "more or less stable since the start of the century," said Kuusisto, thanks to its high allocation to bonds. The asset allocation at the end of June was 52.3% bonds, 5.8 % loans, 2.7% other money market instruments and deposits, 26.5% equity and 12.8% real estate.
Vuoria, who joined Varma at the start of this year as executive v.p., became ceo on June 1. He replaced Paavo Pitkanen, who retired in August.
# posted by Tom @ 7:11 PM 
