11 August 2017
Reporter: Theo Andrew

Varma Mutual Pension sees rise in real estate returns

Varma Mutual Pension Insurance’s real estate funds achieved returns of 4.5 percent, outperforming private equity and hedge funds, which both returned 3.6 percent in H1 2017.

The real estate funds’ returns are an increase on the 2.9 percent achieved in H1 2016 but are down on the 6.8 percent achieved during the whole of 2016.

Total allocation into real estate by the Finnish pension fund was 8 percent, while hedge funds and private equity allocations were at 14 percent and 6 percent respectively.

Real estate remained stable on the whole, achieving overall returns of 2.5 percent in H1 2017, just a 0.1 percent drop on the same period last year.

Ilkka Tomperi, investment director of real estate at Varma, said: “It’s true that for the H1 2017 our real estate funds delivered a very good 4.5 percent return compared to direct (ungeared) domestic real estate returning 1.9 percent.”

“The performance of real estate funds also exceeded that of our private equity and hedge fund investments for the first half of the year. Both of these returning 3.6 percent.”

The news comes after it emerged that pension funds in the US are increasingly turning towards real asset strategies in search for higher returns, according to research from eVestment.

In addition, the results have been underpinned by “surprising” economic growth in the eurozone.

“Our real estate fund investments have benefitted of the recovery and growth of many of the European core markets and a combination of good cash flow return, some capital appreciation and successful exits,” Tomperi said.

In July, Varma sold seven residential properties in Finland to Barings Real Estate Advisors for €43 million.

According to Varma, its investments take place through diversified real estate funds backed-up with project specific funds and co-investments, focusing on Finland, the UK, France, Germany and Sweden.

Overall, the results are consistent with the pension company’s overall investment returns of 4.7 percent, totalling €2 billion, as its investment portfolio reached a new high of €45 billion.

Listed equities was the company’s best performing asset class, generating returns of 7.9 percent in the first half of 2017.

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