AUSTRIA – Bond selection has helped Austria's youngest severance pay fund fair-finance – which has grown sufficiently to award its first bond mandate – to outperform the market once again.
Fair-finance, which won the IPE country award for Austria in 2012, started late in a market established in 2003 to manage the severance benefits that employers are required to accrue for their staff.
In 2011, its first full year of operation, fair-finance outperformed the market significantly, citing its sustainable bond selection.
In 2012, the severance pay fund, or Betriebliche Vorsorgekasse (BVK), returned more than 6.2% compared with a market average of 4.3%.
Markus Zeilinger, founder and managing director at fair-finance, said: "This outperformance is mainly down to our bond-selection process, as well as the fact we were able to buy bonds with longer duration as their risk was mitigated by a steady inflow of new money."
Last year, the fund grew assets under management from €8.8m in 2011 to €54.3m, while this year the fund is set to increase assets to at least €86m.
Given the growth in assets, fair-finance said it decided to award a Spezialfonds mandate for the part of its bond portfolio not marked 'held-to-maturity' to Austria's Erste Sparinvest, a subsidiary of the Erste Bank.
Zeilinger said: "We will continue to select equity funds ourselves and also select bonds for the held-to-maturity portfolio.
"But, given the difficult interest-rate environment, it is important to have someone with a professional trading platform for the rest of our bond portfolio that can react when the interest-rate curve turns."
Zeilinger stressed that fair-finance would stick with its bond-selection approach, as there was currently no fitting benchmark for its sustainability and risk/return criteria.
The fund has allocated most of its 20% government bond exposure to Austria, followed by Belgium, Ireland and Poland.
Another 27% of the portfolio is half investment grade, half non-investment grade corporates.
The fund will also switch from equity retail funds to Spezialfonds once the equity share in the portfolio reaches a certain threshold, Zeilinger said.