EUROPE - The Austrian Pensionskasse APK outperformed the market last year, not least because of its actively managed equity portfolio.

For 2010, the €2.7bn multi-employer scheme reported an average return of 8.75% for its portfolios, which vary according to members' risk profiles, with the best performer, the 'investment and risk community' (VRG), returning 12%.

On average, Austrian pension funds returned 6.6% in 2010, with the VVP reporting a similarly high result to that of the APK.

APK's equity portfolio alone - winner of IPE's equity award for the third year running - returned 25%. Since the implementation of the current structure, it has outperformed its passive benchmark by 5%.

Christian Böhm, head of APK, said: "The strategy will remain the same for this year, but we are managing the portfolio extremely actively, and it is highly diversified, with more than 1,000 names."

Böhm said he was optimistic about equity markets this year, but less so for fixed income, where he considered going short on some bonds.
Equities make up around one-third of the fund's total portfolio, fixed-income 50-60%.

"We are also not afraid to make choices that deviate from the benchmark considerably," Böhm said, adding that last year the APK was almost completely divested from financials.

This is precisely what a good active fund should do, according to KJ Martijn Cremers, associate professor of finance at the Yale School of Management and creator of the 'active share' concept.

Speaking at the recent Morningstar Conference in Vienna, Cremers looked at several thousand funds worldwide labelled 'actively managed' and confirmed previous findings for US active funds showing that, the further funds move from their benchmark, the better they perform.

For international funds, Cremers found that those that have an 'active share' of more than 90% - which he called "truly active" rather than "closet index" funds - performed even better in markets with less competition.

Speaking at the recent Swiss Pension Conference in Zurich, by Stephen Schaefer, professor of finance at the London School of Economics, highlighted what he saw as another shortcoming of asset management.

The Norwegian government commissioned Schaefer to look into the actively managed equity portfolio of the NOK3trn (€390bn) Norwegian Pension Fund Global.

Schaefer found that the fund, through its actively managed portfolio, was exposed to other factors such as liquidity and volatility without knowing which amplified negative impacts on the portfolio during the crisis.

He said: "While one could not have foreseen the crisis, you could have known how this portfolio would behave should a crisis occur."

In the report, Schaefer and other academics concluded it would be cheaper to cover these themes through different investments.

Schaefer said much of the belief in active management originated from "informal sources", which investors filter according to their nature, "which is that we are more interested in success stories".

The see the report in full, click here.

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