Bonds save severance funds falls
AUSTRIA - Mandatory severance pay funds posted a negative return of -1.8% for 2008, which would have been worse had it not been for their large bond exposure.
While theso-called BVK funds returned a “disappointing” 1.94% in 2007, their conservative asset allocation in 2008 saved them from suffering even greater losses in the turbulent markets. (See earlier IPE article: Austrian funds at 2% ‘do better than many funds elsewhere’)
The average annual return since inception of these funds has now dropped from 4% to 2.9% but total assets in BVK rose last year from €1.6bn to €2.3bn.
Around 80% of the funds’ portfolios are invested in bonds, only 1% of which is in non-euro-denominated bonds, while an 18% allocation is held in global equities.
“The very conservative strategic asset allocation put in place since the creation of the funds has paid off as the funds were relatively unfazed by the crisis and proved to be especially stable and safe,” claimed Fritz Janda, head of the BVK association.
He stressed all BVK contributions are fully guaranteed by the funds.
The BVK funds were created in 2001 as part of a restructuring of the severance pay system in Austria and all employees who started work after 2003 are now entitled to get a payment when they are leaving a company.
Contributions are invested in one of nine BVK and over the last year the number of members in these funds has grown from 2.4m to over 3m - a jump from the previous year’s growth of 340,000 members thanks to the inclusion of self-employed people in the system. (See earlier IPE article: Severance pay for self-employed)
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