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Risk management high on Portuguese pension funds' radar - WTW

Portuguese pension funds are paying close attention to their risk management strategies, increasingly either reviewing or considering reviewing them, according to Willis Towers Watson (WTW).

José Marques, senior investment consultant at the consultancy, said the funds wanted to ensure they could effectively monitor their investments relative to their liabilities.

“In the pension fund world, it is important to measure performance relative to liabilities, and not simply asset performance,” he said.

“Similarly, we are seeing some funds increasing the duration of their fixed income assets in order to match liabilities, and hence reduce the risk of falls in interest rates.”

The occupational pension funds’ third quarter returns were strengthened by the performance in the equity and euro-denominated bond markets, according to the consultancy.

Schemes generated a median return of 1.0% over the period, up from 0.2% for the second quarter.

The average 12-month return to the end of September was 2.6%, compared with a 2.7% return for the 12 months to June 2017.

Annualised returns for the three years to 30 September rose to 3.3% from 3.0% at end-June, but fell to 5.1% from 5.6% for the five-year period to end-September.

Marques said: “Both equities and euro-denominated bonds had good returns over the quarter.

“Most pension funds in Portugal have very high allocations to euro-denominated bonds, which had returns slightly below 1.0%. This return was slightly enhanced by the very positive returns on equities which form a small part of Portuguese funds’ allocation.”

Marques continued: “Over the 12 months to end-September, equities had an excellent run globally, and even more so in the eurozone – for example, the MSCI EMU Index returned 22%.”

In contrast, he said, euro-denominated bonds had suffered negative returns as bond yields rose.

But he added: “Most pension funds in Portugal hold short-term bonds which are not very sensitive to changes in yields, so this has not materially reduced overall portfolio returns.”

Performance figures were submitted by so-called ‘closed’ funds, which are generally pension plans for a single employer or group of companies, and make up the vast bulk of occupational plans in Portugal. The figures incorporated more than 100 pension funds, including the five biggest pension fund managers in the country.

At end-September, Portuguese pension fund portfolios were still heavily dominated by debt, which made up 53.5% of portfolios (including direct and indirect holdings), according to estimates from the Portuguese Association of Investment Funds, Pension Funds and Asset Management (APFIPP). The estimates cover 88% of the Portuguese pension fund market at end-September 2017.

Equities made up 23.2%, and real estate 13.6%, of portfolios at that date. 

Montepio and CEFC China Energy tie-up

Associação Mutualista Montepio, the largest savings and pension fund manager in Portugal, has agreed to sell a majority share in its insurance subsidiary Montepio Seguros to CEFC China Energy, by way of a capital increase.

CEFC China Energy is a Shanghai-based privately-owned corporation whose core activities are energy and financial services. One of its long-term aims is to establish an international investment bank and an investment group.

Last September, Montepio and CEFC signed a strategic cooperation agreement to establish collaboration in the financial sector, intended to expand to oil and gas, new energy, and infrastructure construction.

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