Operations, 2016–2017

Satisfactory return on investments

After five excellent investment years, the value of the Foundation’s assets no longer grew but retained their record high value of the previous year.

The fair value of the Finnish Cultural Foundation’s assets at the end of the year stood at the previous year’s level, EUR 1,618 million. The return on investments was 2.1 per cent during the period 1 October 2016 to 30 September 2017.

The surplus for the financial year was EUR 8.1 million. The capital gains from the sale of assets were EUR 20.7 million, of which EUR 3.6 million was used for supporting the Regional Funds. This included, the current returns and donations allocated to grant operations exceeded the expenditure on grants and other statutory operating expenses by EUR 0.3 million.

A total of EUR 13.5 million was received in bequests and donations. Of these, capital donations totalled EUR 13.2 million, and donations allocated to grant operations totalled EUR 0.3 million. A total of 18 new donor funds were established during the year: ten in the Central Fund and eight in the Regional Funds. One donor fund was dissolved. On 30 September 2017, the Foundation had a total of 843 funds.

The growth of the global economy has accelerated considerably during the year, and the strengthening has been widespread. Finland has also finally joined in the global growth. The recovery of both the euro zone and the emerging economies has been especially gratifying. For the first time in more than a decade, all OECD countries seem to show positive economic growth in 2017. Unemployment has declined, and exports have remained at a good level despite the strengthened euro. The increase in Russia’s economic growth also has a positive impact on Finland. In the United States, however, economic growth has been slower than projected. Although investments and industries have been in good shape, private consumption has lagged behind expectations.

The strong growth of the global economy pushed the global stock market to an upturn. At the end of the financial year, the MSCI World index had risen by 12.3 per cent. It is expected that the growth of the economy and earnings will continue to support the positive development of the stock market. Valuation levels, however, are high, and investors are quick to respond to disappointing results. During the spring and summer, the euro has strengthened against the US dollar, and for a euro investor, this has weakened the euro-denominated returns from the US and Japanese stock exchanges. In the fixed-income market, the interest rates have remained at a low level as a result of central bank activities. During the year under review, the credit risk margins for corporate bonds with credit risk have continued to decrease and have dropped to close to record low levels.

The return on the Finnish Cultural Foundation’s equity investments was modest at 0.4 per cent. The return on the portfolio’s benchmark index for the period was 15.8 per cent. A return lower than the index was due to the fact that the price of the Foundation’s largest holding, the Huhtamäki share, fell in the latter part of 2016, correcting the strong rise of the previous years. The return on the Foundation’s long-term fixed-income investments was 3.9 per cent, with the return of the benchmark index being 1.5 per cent. The return on the Foundation’s other investments, mainly private equity funds, stood at 9.9 per cent. The return on the real estate portfolio was 4.8 per cent.

In addition to the prevailing legislation, the Finnish Cultural Foundation complies with the principles of responsibility and sustainability in its investment activities. The Foundation uses an external expert to assess the responsibility of its domestic equity investments at regular intervals. In foreign fund investments, the Foundation only cooperates with asset managers who act in a responsible and transparent manner and have signed the UN Principles for Responsible Investment (PRI) or a comparable document.

As in previous years, the most significant uncertainties were related to the development of the global economy and capital markets. The low pricing of risk by the investment market may expose the market to rapid and steep corrections if a negative factor takes effect. Geopolitical risks have also risen as a result of the worsening of the already bad relations between the United States and North Korea. In the euro zone, concerns are caused by the situation in Catalonia in Spain and the stagnated Brexit negotiations.

The Foundation’s assets are distributed across various asset classes. It has a good risk-bearing capacity and crisis tolerance as a long-term investor,. The Foundation’s high level of cash reserves enables it to endure a decrease in share prices even for longer periods, if necessary.