Finnish pension fund eyes equities, emerging mkts

* Scheme returns 5.3 pct in H1

* Boosts corporate bond exposure by 60 pct

* Plans equity, real estate investment boost

* Appoints JP Morgan as custodian

By Cecilia Valente

LONDON, Aug 27 (Reuters) - Finland's 11 billion euro ($15.66 billion) state pension fund is switching into equities from bonds as markets rally and wants to boost exposure to emerging markets, managing director Timo Loyttyniemi said on Thursday.

His comments came as the pension fund, also known as VER, reported a 5.3 percent return on assets in the first half.

Emerging market stocks currently make up 12 percent of the equity portfolio.

"The question about emerging markets is 'how much?'," Loyttyniemi told Reuters. "We would like to increase investments, but at the right price."

VER's intent mirrors plans elsewhere.

Jorge Huitron, a senior associate at consultants bfinance, said on Thursday: "Institutional investors are increasingly looking to have a dedicated exposure to emerging market equity.

"We have seen a large increase in the number of searches in emerging markets both in global and dedicated regional emerging market equity," Huitron said. [ID:nLR132144]

VER's equity portfolio accounts for 35 percent of the scheme's assets but could reach 40 percent by the end of the year, said Loyttyniemi.

Equities returned 12.2 percent in the first six months.

Alternative investments, including real estate, private equity, infrastructure and hedge funds, returned a negative 11 percent in the first half, mainly due to poor performance from real estate and private equity assets.

However, VER, which pays 40 percent of state pensions, is still keen to boost its real estate investments to 50 percent of its alternatives portfolio from 40 percent at present.

"We are interested, but it is not anytime soon. We will be choosy,", said Loyttyniemi.

The scheme said in a statement it had increased exposure to European corporate debt by 60 percent between early 2008 and June 2009 to 32 percent of its fixed income portfolio.

The fixed-income portfolio returned 3.4 percent in the first half of the year.

At the end of June, the fixed income portfolio amounted to 60 percent of assets, but has since dipped to 55 percent, Loyttyniemi said.

The pension fund has also awarded a clearing and custody brief to JP Morgan (JPM.N) after the group took over the global institutional business of Scandinavian group Nordea (NDA.ST), the incumbent custodian.

Loyttyniemi said the appointment was made in the summer after a competitive bidding round.

The state pension scheme covers 183,000 employees and pays retirement benefits to 300,000 people. (Additional reporting by Raji Menon; Editing by Joel Dimmock and Daqvid Holmes) ($1=.7024 Euro)