Finlands state pension fund is ready to lift its underweight equity allocations and buy more corporate bonds when the global economic outlook steadies after doubling its credit exposure since mid-2008, an official says.
Timo Loyttyniemi, managing director of the State Pension Fund of Finland (VER), told Reuters on Thursday that the 10-billion euro fund could increase its equity allocation back to a neutral level of roughly 40 percent from the current level of around 30 percent.
When asked about necessary conditions to bring VERs equity portfolio back to neutral, Loyttyniemi said: "The world economy and the financial crisis... events must stabilise somewhat and its more or less stabilised. If there is stabilisation in the economic outlook - or if the situation stops getting worse - thats a key factor too." The pension scheme, which covers the civil service, has been increasing credit exposure gradually, boosting allocation to corporate bonds to roughly 20 percent from around 10 percent mid-2008. It holds investment grade corporate bonds in the euro zone.
"Its a very attractive market. Returns are higher than normal equity return expectations. We can increase a little bit more," he said on the sidelines of a conference. Loyttyniemi said equity and credit markets are drawing capital flows which had previously gone for alternative assets, which suffered huge losses after the credit crisis began in 2007.
"There was a time five years ago when a lot of pension funds, institutions and some sovereign wealth funds were looking at alternative assets. My own guess is nobody is excited about alternative assets now," he said. "Therefore equities are taking up a bit more of the space for risk assets. Credit markets are also taking up that proportion. I wouldnt be surprised if sovereign wealth funds increased corporate credit exposure."