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Basic diversification rules still hold true – Austrian PKs

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  • Basic diversification rules still hold true – Austrian PKs

AUSTRIA - All three heads of the largest Austrian Pensionskassen believe the financial crisis should not fundamentally change their funds' assumptions on asset allocation.

Speaking in Vienna, Austria, today, Christian Böhm, head of the APK fund and the Austrian pensionskassen association FVPK, said: "The basic rules about diversifying into more risky asset classes, such as equities, and adding a bit of real estate and alternative investments, still holds true even after the financial crisis."

Karl Timmel, head of the largest pensionskasse, VBV, agreed alternatives such as hedge funds and commodities were a good addition to a portfolio, albeit in small amounts.

"But we will certainly see a more considerate approach to diversification and less diversification for diversification's sake," said Böhm.

Andreas Zakostelsky, head of the ÖPAG fund, also said he does not expect see "a further decrease in the medium-term" of the equities quota within portfolios.

Instead, Zakostelsky predicted the market would see a shift in other asset class portfolios as new regulations to be put before parliament in autumn are likely to lead to the introduction of a "safety pension" with a very conservative portfolio.

"We will have more freedom in the other portfolios as those who really want guarantees can choose the safe portfolio," he noted.

The asset allocation of a pensionskasse in Austria is very client-driven as companies with over 1,000 employees can request to have their own portfolio.

After the regulatory reform, which is expected to come into effect in January, individuals will also be granted more choice both close to retirement - the "safety pension" - as well as during their active working lives - under "the lifecycle model".

Timmel said while his fund has had this choice of between three risk levels in place for five years now, "young people are making too little use of the option of going into a dynamic portfolio".

All three pensionskassen heads agreed there will have to be more information for members on the issue of individual choice.

In the short to medium-term, Böhm does not believe there will be an immediate return to the equity levels held before the crisis, as members are thought to be too afraid to do so and pensionskassen themselves remain cautious about signs of economic recovery.

"I think it will be a W-shaped recovery, where it goes up but then we will see another decline," he noted.

Another factor expected to lower equity quotas over the coming year is pensionskassen have already used up the buffer funds needed if they want to up the risk in portfolios.

That said, Böhm also noted it was important to see that the market environment, and with it some basic truths about asset allocation, have changed over the last two decades.

He noted that with the introduction of the euro and with it the Maastricht criteria on government debts, the average return on government bonds has declined to under 6%, while up to that point it had always been over this mark.

Furthermore, he also doubts that the 40% equity quotas Austrian pensionskassen held in the mid-1990s will ever return as markets are felt to be more volatile than before.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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