CZECH REPUBLIC - Czech pension funds returned 1.7% in the third quarter but only under accounting practices, while the actual average performance for 2008 will be around 0%, IPE has learnt.

All 10 Czech pension companies are required by law to guarantee they will deliver positive returns and if necessary do so by injecting money from their own assets - a legal provision which is about to be reformed. (See earlier IPE story: Czech Republic adds personal pensions into fray)

The 1.7% return for Q3 - similar to the 1.2% reported for Q1 and the 1.9% for Q2 - was therefore only achieved with the help of "interest from fixed income instruments" which are added to the calculations for the fund companies' profit and loss accounts.

The "actual performance of pension fund portfolios was lower because of sharp decline of equity markets" but this decline only appears on balance sheets not on the profit and loss accounts, said Petr Benes, head of the Czech pension fund association APF, to IPE.

More importantly, he thinks "the average portfolio performance for 2008 may be around zero", he added.

The average asset allocation of the funds has changed little with the vast majority - 76% - is still held in fixed-income and only 4.3% is invested in shares.

Compared to Q2 the share of cash holdings has increased slightly from 11.5% to 12.3%. (See earlier IPE story: Czech pension funds' profits halve)

Profits of pension funds stood at CZK2.2bn (€90bn) at the end of Q3 down from CZK3.5bn the year before, according to the latest figures released by the APF.