Icelandic pension funds achieved returns on assets of more than 11% in 2013, driven by well-performing domestic securities, according to local financer IslandsBanki.

The pension funds, which have more than ISK2trn (€13.4bn) in total investible assets, saw real returns of 11.1% over the period, well above their 3.5% actuarial threshold.

The funds’ domestic securities, which include ISK243bn in government bonds, returned 12.5%, while their foreign holdings returned 7.9%.

Given that foreign holdings are legacy investments – since the funds were barred from investing new capital abroad – and the appreciation of the kroner, the return on foreign investments was impressive, the bank said.

Equity holdings, in terms of the kroner, grew by 60% over 2013, as the local equity index, the ISB K-10, returned 37%.

IslandsBanki said the pension funds would have benefitted significantly from the listing of Icelandinc firms N1, a consumer services provider, and TM, an insurance company.

The funds were large shareholders in the firms prior to their listing.

In total, the funds now account for more than one-third of listed equities in the country.

The pension funds still represent the government’s largest creditor, with the ISK243bn in bonds accounting for 11.9% of assets, in addition to other municipal bonds, which account for 2.9%.

However, in comparison, the funds’ Housing Financing Fund (HFF) investments account for 23% of assets, leaving them significantly exposed to the success of the bonds.

These assets were sold to the pension funds in 2010 by the central bank after it soaked up the bonds in the wake of Iceland’s financial crisis and banking collapse.

IslandsBanki said, by the end of the year, the pensions scheme held 11.5% of their assets in domestic equities and mutual funds, with a further 20% in foreign equities and mutuals.

However, fixed income (56.8%) still dominated the allocations.