Austrian Pensionskassen have recorded returns of -3.77% in the first quarter of this year, which was a direct hit of the impact of the war in Ukraine on equity markets and high inflation, according to first quarter results published by Fachverband der Pensions- und Vorsorgekassen – the association representing the interests of pension and provident funds.

The investments of pension and provident funds remain particularly challenging in the current year due to an uncertain geopolitical situation which is impacting financial markets.

“In terms of investments, we were prepared for possible crises, but we cannot completely cushion such turbulences in the short-term,” said Andreas Zakostelsky, chair of the association, noting however that losses in Q1 did not necessarily mean negative annual results.

In 2020, for example, Austrian pension funds had to deal with short-term volatility caused by the COVID-19 pandemic, achieving a positive return of 2.55% at the end of the year after a negative start in the first quarter with returns of -10% recorded at the time of the equity market downturn.

Zakostelsky expects returns to follow a similar trajectory this year: “Since we are only at the beginning of the year, there is definitely still potential to catch up.”

Austrian pension funds have built up reserves in positive years for investments to cushion market volatility. In 2021, Austrian Pensionskassen recorded returns of 7.62%, and Vorsorgekassen of 4%, above expectations set at the beginning of the year, according to the Fachverband.

But for this year the effects of Russia’s invasion of Ukraine cannot yet be fully assessed, while the economic pain triggered by the war and the sanctions are being felt, among other things, with rising energy prices and a shortage of raw materials, said Zakostelsky and Stefan Pichler, the association’s managing director.

The portfolios of pension and provident funds in Austria are broadly diversified – exposures to Russian securities are generally very low, said Günther Schiendl, board member of VBV Pensionskasse, adding that positive investment results recorded in the last few years mean that there are still reserves (volatility reserve) in many pension funds.

Not only the war in Ukraine and the broader geopolitical tensions, but the “massive rise” in energy prices, high inflation rates and interest rate hikes by the US central bank have shaped the start of this year, he added.

APK Pensionskasse decided to temporarily reduce its exposure to equities through hedging in the first two months of 2022, and simultaneously slightly increasing US Treasuries, it said.

The Pensionskasse has a small amount of holdings in Russian and Ukrainian securities in its emerging markets equities and bonds portfolio. It has decided to exclude Russia from its investment universe as far as possible, immediately divesting directly-held Russian holdings or instructing fund managers to sell them, it said.

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