Austrian Pensionskassen have rebalanced their portfolios’ asset allocation during the first half of 2022, cutting exposure to equity, increasing the share of alternative investments, and slowing down plans to reduce fixed income, as a result of market turmoil, according to the country’s financial market authority FMA.

The share of equities in pension funds’ portfolios fell from 40.6% at the end of last year to 37% in June this year.

Allocations to alternative investment funds went up from 4.4% last year to 6.9% in June this year, while real estate investments increased from 5.9% at the end of 2021 to an all-time-high of 6.9% in June, according to the FMA.

Investments in private equity funds rose from 3.8% at the end of 2021 to 4% in the first six months of this year. Fixed income allocations currently stand at 31.6%, down from 32.9% at the end of the last year, while Austrian government bonds investments have increased by 14% to around €124m since the end of 2021.

Investments in government bonds have been on the rise again this year, making up the largest share in Pensionskassen portfolios with close to 20%. Corporate bonds allocations, however, have been declining since 2021 and is now at around 10%.

The FMA noted that a low-interest-rate environment is becoming less important for Austrian pension funds in risk management, with long-term yields rising sharply across the European Union, while rising interest rates are at the top of pension funds’ risk lists, becoming more relevant.

Derivatives play an important role in pension schemes’ investment strategies, both for hedging and for efficient portfolio management, FMA said, noting that Austrian Pensionskassen are injecting €6bn in derivatives to help hedge foreign currency transactions, but allocations slowed down in the past year.

Derivatives for hedging equity transactions, instead, have recorded a significant increase to €2bn in the second quarter of 2022, reflecting a different approach by pension funds to withstand risks in equity markets as a result of the Russia-Ukraine war, the regulator said.

As for returns, Austrian Pensionskassen returned -8.78% in the first half of this year, down from 7.63% recorded in 2021, mainly because of the outbreak of the war in Ukraine.

Assets under management fell from €27bn at the end of 2021, corresponding to around 7% of Austrian GDP, to €24.6bn at the end of June this year, hit by price declines in financial markets and the consequence of Russia’s invasion of Ukraine.

Austrian Pensionskassen invest one quarter of their assets in sectors relevant to climate change, from energy generation to fossil fuels, and real estate.

The schemes manage the assets of 1.02 million beneficiaries, up from 1.01 million at the end of last year, including 13% who receive a pension, and 87% who are entitled to pension benefits, corresponding to about a quarter (23%) of all employees in the country.

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