Like many other big investors, the largest private-sector pension fund in Finland has more cash than it knows what to do with. That’s why its management is confident that asset prices, high though they are, will be forced even higher.
Reima Rytsola, the chief investment officer of Varma Mutual Pension Insurance Co., says markets are already “super expensive.”
“It has been the story of this year that everyone seemed to wait for a correction in the equity market, and then there is a 2 to 4 percent correction, and scream-on buying,” Rytsola said in an interview in Helsinki. “Investors like us have so much parked capital that will come rushing into the riskier markets as soon as there is any kind of a correction.”
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Varma, which manages 45 billion euros ($53 billion) in assets that pay for part of Finns’ legally mandated employment pensions, cut its equity holdings by 5 percent in the second quarter to 38 percent, increasing cash positions instead. Most of that was done by reducing the fund’s exposure to U.S. stocks amid concerns over the signals coming from the White House.
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Varma has about 40 percent of its assets in fixed income and 14 percent invested in hedge funds, including the Blackstone Group L.P. and Bayview Asset Management LLC. It is the biggest hedge-fund client among pension funds in the Nordic region in absolute terms, according to data compiled by Bloomberg, though not all funds disclose such information.
A steady run in equities since February 2016 has been punctuated by little dips. But every time prices decline, losses are soon recouped as buyers trying to offload cash return to the market, Rytsola said.
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Corporate earnings have so far underpinned valuations and “multiples have been fairly stable this year,” he said. “The only asset class that’s not super expensive is equities.”