Operations, 2017–2018

Politics returns to the market

The return on the Finnish Cultural Foundation’s equity investments was low due to the weak price development of the Huhtamäki share, the Foundation’s largest holding.

The fair value of the Cultural Foundation’s assets at the end of the year stood at EUR 1 584 million. Of these, the fair value of investment assets stood at EUR 1 405 million. The return on investments was 0.3 per cent during the financial year of 1 October 2017 to 30 September 2018. The return of the benchmark index in the same time period was +6.4 per cent.

The low return of the portfolio is, similarly to the previous year’s, largely due to the weak price development of the Huhtamäki share, the Foundation’s largest holding. The stock price of the Huhtamäki share fell 17.3 per cent, whereas in the same time period the Helsinki stock exchange CAP yield index yielded 11 per cent. The development of the yield index, however, does not give a full picture of the Helsinki stock exchange development, as the excellent returns of a few companies with large index weight, such as Neste (+92 per cent), UPM (+53 per cent), and Fortum (+36 per cent), explains most of this index yield. The development of other company stock has been modest.

The deficit for the financial year was EUR 1.8 million. The capital gains from the sale of assets were EUR 9.3 million, of which EUR 4.3 million was used to support the grant activities of the regional funds. Capital gains included, the amount of current returns and donations fell short of the expenditure on grants and other statutory operating expenses by EUR 1.5 million.

A total of EUR 4.2 million was received in bequests and donations. On 30 September 2018, the foundation had a total of 845 donor funds.

At the turn of 2017–18, the global growth outlooks were positive. All economic zones were growing, the levels of trust were up, and the mood of the investment market was positive. February, however, saw a change when the global stock market experienced a correction. The main reasons behind this were the US Federal Reserve’s raising of interest rates, related to normalising the US fiscal policy, as well as the fear of inflation due to strong economic growth and record low unemployment rate. The economic growth also slowed down more than expected in China, and this stunted growth reflected not only in developing markets but also in Europe, which as an open and export-led economic zone is connected to the growth in China and global commerce. During spring, politics made a comeback on the market, as well. An impending trade war between China and the USA, the debt issues of Turkey and Argentina, and the budget plans of the Italian populist parties that won the elections were all seen as causes of concern.

With the raised interest rates, strong dollar, and solid economic growth, the US has become a safe haven for investors. As the flow of investments has moved to the US markets, the stocks and currencies of developing countries have gone down considerably and risk premiums on the bond market have increased. The development of stock exchanges has been quiet also in Europe, although the stock valuation level is considerably more moderate than in the US. In the foreign exchange market, the euro has weakened against the dollar.

The return on the Cultural Foundation’s equity investments was negative at -3.1 per cent. The return on the benchmark index for the same period was 9.2 per cent.

The return on the Foundation’s fixed-income investments including money market investments was 0 per cent while the corresponding return on the benchmark index stood at -0.3 per cent. The return on other investments, mainly private equity funds, was 10.4 per cent. The return on the real estate investments stood at 13.8 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’s assets are distributed across different asset classes, and as a long-term investor it has good risk-bearing capacity and crisis tolerance. The Foundation’s ample cash reserves allow its budgeted cost development to endure a decrease in share prices even for longer periods of time, if need be.

As in previous years, the greatest uncertainties in investments are related to the development of the global economy and capital markets. The investment markets may experience rapid and even steep corrections, should any unforeseen negative factors come into play.