Relationship between Investment Strategies and Pension Fund Performance in Finland

Abstract

Purpose: The aim of the study was to assess the relationship between investment strategies and pension fund performance in Finland.

Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.

Findings: The study indicated that diversified portfolios, incorporating both traditional and alternative assets, tend to mitigate risks while potentially enhancing returns over the long term. Strategies emphasizing active management, where fund managers adjust investments based on market conditions and economic forecasts, have shown mixed results but can capitalize on short-term opportunities. Additionally, the adoption of quantitative models and data-driven approaches has become more prevalent, aiming to optimize returns while managing risk more effectively in volatile market environments. Moreover, the alignment of investment strategies with long-term liabilities is crucial for pension funds, ensuring that assets grow sufficiently to meet future obligations. Studies highlight the importance of strategic asset allocation frameworks tailored to each fund’s risk tolerance and time horizon, balancing between growth assets like equities and more stable assets like bonds. Furthermore, considerations for environmental, social, and governance (ESG) factors have gained prominence, with evidence suggesting that integrating these criteria into investment decisions can positively impact long-term performance by reducing risks associated with sustainability issues and enhancing overall portfolio resilience.

Implications to Theory, Practice and Policy: Modern portfolio theory (MPT), efficient market hypothesis and behavioral finance theory may be used to anchor future studies on assessing the relationship between investment strategies and pension fund performance in Finland. In practice, pension fund managers should adopt a balanced approach that combines active and passive investment strategies to optimize performance while managing costs effectively. From a policy perspective, it is important to advocate for regulatory frameworks that support innovation and flexibility in pension fund investment strategies.