Finland’s €5 billion ($5.8 billion) Veritas Pension Insurance Company is preparing to increase its public equity allocation by 15 per cent in line with new regulations, in a bid to boost returns and mitigate demographic changes which are threatening the sustainability of its pension system.
It means total public and private equity at the institution, which provides statutory pension provision for Finland’s private sector employees, will account for 70 per cent of assets under management, triggering a reappraisal of diversification and portfolio construction at the fund, alongside preparation for much more volatility in returns ahead.
“There isn’t a magic bullet that allows us to maintain the same diversification and increase equity,” chief investment officer Laura Wickström tells Top1000funds.com in an interview from the city of Turku in the southwest of Finland.
Fixed income and alternatives will be relied on even more as sources of diversification and the allocation to hedge funds will be stripped of all equity risk or anything that correlates to equity, and favour quality and idiosyncratic strategies instead.
The reform was agreed in principle late in 2025; draft legislation is expected before Parliament in 2026 and changes could start as early as 2027. A key part of this reform focuses on unlocking higher returns by allowing greater risk-taking — particularly through higher equity exposure.
As she plans how best to build up the equity allocation challenged by high valuations, one strategy that has already proved its worth in helping manage a steadily increasing allocation to US stocks – which will inevitably grow larger still – includes an internally managed currency hedging position.
It has shielded the portfolio from the impact of the dollar weakening against the euro, particularly in the first quarter of 2025, and has also allowed the investor to maintain an equity exposure on which Wickström remains positive, mindful that the growth profile of many US-based companies is not easily replicated in a European equity portfolio.
“Our decision to hedge the currency had a bigger impact on the portfolio this year than our small reduction in the allocation to US equities did during Liberation Day. Our US listed equity exposure remains relatively unchanged – but what is different is our decision to hedge the US dollar.”
Given the inherent costs of hedging the dollar, investors typically have some kind of forecast of where the dollar will move. But she says the team don’t have a clear view on whether the dollar will weaken further against the euro going forward since it has already experienced a big move. The most important thing, she says, is to acknowledge that US assets are a larger part of the portfolio compared to the past and that any dollar moves will have a big impact on the portfolio.
The increased allocation to equity will be accompanied by more in-house management not only of the currency position and derivatives, but also the investor’s direct allocation to Finnish, Nordic and European equity. She notes that despite the expectation at the beginning of 2025 that European equities would have a bumper year, recent poor earnings continue to drag on returns.
“We’ll have to see what next year brings,” she reflects.
Moreover, sectors set to benefit like defence where Veritas invests in the defence sectors of NATO countries have not proved a particularly rich source of returns. She describes more hype around the sector than actual opportunities, although opportunistically tapping defence innovation by investing in early-stage venture companies is a priority.
“It’s a responsible thing to invest in something that provides the means to protect independence and freedom in Europe.”
Under the reforms, Veritas will also be able to integrate leverage into its indirect real estate allocation for the first time. It will enable the fund to free up capital without having to sell real estate assets, to invest more in equity. Veritas will apply 50 per cent (or lower) leverage to the portfolio, says Wickström.
She concludes that although applying leverage will magnify returns on the upside and downside, Veritas has the in-house skill to efficiently manage the risk.