Pension assets grew at a record pace – return EUR 3.6 billion
The global economy recovered strongly in 2021. Growth was stronger than it had been in decades. This was also reflected in Elo’s investment income. The return on Elo’s investments was 14.0% (3.6%). The market value of Elo’s investments was EUR 29.4 (25.9) billion at the end of 2021.
“Last year was a very exceptional year worldwide. In terms of investment returns, we can be satisfied because the return for the whole year, EUR 3.6 billion (or 14 per cent), was the best in Elo’s history. We received particularly good returns in the last quarter of the year,” says Carl Pettersson, CEO of Elo.
Private equity investments generated record-high returns
“The global economy and financial markets recovered briskly in 2021, as most advanced economies caught up with the fall in GDP caused by the coronavirus pandemic. Returns were supported by the extensive monetary and fiscal stimulus measures,” says Elo’s CIO Hanna Hiidenpalo.
Elo’s equity investments returned 26.6 (4.5) per cent, fixed income investments 10.0 (2.6) per cent, real estate investments 7.5 (2.2) per cent and other investments 6.0 (6.0) percent. The result of investment operations at fair values was EUR 1,562.8 million (EUR -30.0 million).
“The equity markets generated good returns in 2021. Regional incomes diverged towards the end of the year. US equities were the best-performing, driven by large tech companies, and the weakest-performing were emerging market equities. The Finnish economy recovered from the recession, with consumption and investments supporting growth. As in Europe, the Finnish equity market generated good returns in relation to other markets,” Hiidenpalo says.
Private equity investment returns were at a record high.
“Elo’s private equity investments generated an excellent return of over 40%. The returns are the result of consistent investment activity. Companies benefitted from the recovery of economies and good share price development,” says Hiidenpalo.
The real estate investment market normalised, trading returned close to the pre-COVID-19 levels and construction volumes were high. The results of real estate development and sales, as well as the positive development of market values, raised total returns, especially in residential and office properties, although the effects of the pandemic were reflected in the rental income of real estate early in the year.
Investments driven by climate targets
Elo is committed to decarbonise and align its investment portfolio to the goals of Paris Agreement. Elo’s climate strategy is based on the roadmap and its objectives. The objectives include reducing carbon risk by decreasing the weighted average carbon intensity of listed equity and corporate bond investments by 25 per cent during 2019–2025.
“We continued to work in accordance with the roadmap, for example, by setting climate targets for sovereign bond and private equity investments. As part of the investment analysis, we developed a climate risk tool for emerging market debt investments to assess climate change risks and opportunities”, says Hiidenpalo.
The coupling between economic growth and inflation and central bank policy will have a significant impact on financial markets in the first half of 2022. The growth forecasts for the world economy for the current year are lower than in the previous year, at around 4 per cent. In many industrialised countries, the availability of skilled labour and inflation pressure, including rising energy prices, pose challenges to business operations.
Finland’s economic growth will continue, but it is likely to remain slightly below 3 per cent. Growth is likely to remain strong and broad-based, relying on both exports and consumption and investment demand. In particular, the consumption of services is expected to recover.
The actions of central banks and the fiscal stimulus measures will have a decisive impact on the development of the financial markets. Monetary policy is expected to tighten, and the rise in market interest rates is also likely to continue in 2022. Financial markets will have to adjust to higher interest rates and lower liquidity in the market.
Largest pension insurer of self-employed persons in Finland
Each month, approximately 246,100 (243,600) pensioners were paid their pension by Elo. A total of EUR 3,091.8 million (EUR 2,998.7 million) was paid in old-age pensions, and EUR 309.9 million (EUR 309.4 million) in disability pensions during the year.
Elo is the market leader in self-employed persons’ YEL pension insurance in terms of the number of policies. One in three employer companies are insured by Elo. At the end of 2021, Elo was responsible for about 84,500 (83,600) self-employed persons’ YEL insurance policies and 51,200 (48,300) TyEL insurance policies taken out by employers. The total number of self-employed persons and employees insured by Elo at the end of the year was 500,000 (476,700).
The coronavirus pandemic continued in 2021, but its impact on Elo’s customer companies was less pronounced than in 2020. In most industries, the TyEL payroll returned to the level of 2019 or even higher. However, the hospitality sector still suffered from COVID-19, and the TyEL payroll did not return to the pre-COVID-19 level. The total TyEL payroll was 5.4 per cent higher than in 2020.
Elo’s corporate governance and management system has been developed
The Financial Supervisory Authority (FIN-FSA), the regulator of the insurance sector, appointed an authorised representative on 11 December 2020 to supervise the activities of Elo. In June 2021, the Financial Supervisory Authority requested the Board of Directors and Supervisory Board of Elo to submit plans on clarifying Elo’s corporate governance and management system, among other things. The plans were submitted within the given schedule. A significant part of the planned measures were carried out during 2021, and the rest will be implemented as planned in early 2022. The Financial Supervisory Authority has announced that it will re-evaluate the need for a representative in April 2022 at the latest.
Financial Statements 2021 slides (pdf) >
The data are unaudited preliminary data. Elo will publish its financial statements for 2021 and the Board of Directors' report in full on 4 March 2022 on the company's website.