The Fonditel pension fund in Spain, the fund of Telefonica de Espana, achieved a return on its investments of 6.39% in 2004. “This was achieved basically through the implementation of an adequate exposure to the different asset classes during the year,” the fund says.
Fonditel was overweight in equities at the beginning and at the end of the year, just when the stock markets experienced a better performance, it says. “To a lesser extent, the successful foreign exchange management offered additional returns.”
Looking ahead, Fonditel sees one of biggest challenges for the next year as being the task of trying to retain the group of pre-retirement Telefonica employees in the face of an aggressive marketing campaign by the banking system.
“However, we will also have the opportunity to grow in terms of assets under management capturing new pension funds from corporations out of Telefonica’s group,” the fund says. In both cases, it believes its strength will be based on offering good services, transparent and useful communication with trustees boards and low commissions. “And, of course, better returns than competitors as in all these past years.”
The telecoms pension fund has no intention of changing its investment portfolio as market conditions change. And neither will it make any modifications to its investment policy, which is based on the principle of linking around 80% of the total portfolio to the major asset class indices and using the remaining 20% of assets to find beta value opportunities via any other kind of low-index correlated investments.
“This is the so-called core satellite system which has revealed as highly successful for us in the past,” the fund says. On the subject of upcoming changes to the regulatory framework in Spain, Fonditel says one of the main points of this will be developing investments in hedge funds. This will increase the investment universe for the fund.
Among other important issues to be cleared up will be whether it is possible to implement different investment policies in different baskets within the same pension fund, keeping them in line with the different risk tolerance levels, which are preferred by the employees.
At the moment, the Fonditel portfolio is split between 31% in equities, 53% in fixed income, 10% in alternative investments and 6% in cash. The fund conducts both asset management and administration in-house.
Angel Martinez Aldama, director general of the Investment and Pension Funds Association (Inverco), says the last year has been relatively quiet in terms of changes in the pensions landscape.
“The decree was published in February last year, and since then there haven’t been any new developments,” he says.
The government has been making efforts to extend the pension fund for civil servants, he says. “It has been trying to extend those schemes towards those working for regional governments and municipalities.”
The government has said it will consider the tax treatment of individuals, but Martinez predicts that any changes that are made in this area will be light. “The government will put its proposals to parliament at the end of the year,” he says.
There have been reports that the public pension system will not be sustainable in the longer term. But at the moment the government is concerned mainly with labour market reform, says Martinez
Of all the funds that are managed by ASEVAL for Bancaja, pension fund Bancajapension Variable has the greatest exposure to equities. The fund meets the investment requirements of those customers who want to take more risk over the long term in order to achieve higher returns, a source says.
The fund’s strategic distribution of assets allows for at least 75% of its portfolio to be invested in liquid assets, mainly in Euro-zone stock exchange indexes. The fund takes other types of investment into consideration depending on whether the time is right. Alongside this, the fund takes other non-correlated positions to give it long-term stability.
The level of cash that the fund holds is kept at the minimum required to meet commitments, which the fund determines by means of its ongoing assets and liabilities management, the source says.
“Liquid assets that are correctly diversified lead to set an efficient portfolio within the Markowitz mean-variance environment,” the source says. A high rate of diversification, dynamic sector selection, strict stock picking, control on VaR as well as careful eye on tracking error all combine to give the best performance, regardless of the trend followed by financial markets, he says.
Since its launch in 2000, this fund has systematically beaten the average market performance of other funds within the same category. The fund started 2004 over weight in equities, and managed to avoid three significant downturns which happened in March, May and July-August. It ended the year with a high equity exposure of more than 90%. This allowed it to end 2004 with a return of more than 10%.
“This year is also satisfactory,” the source says. With a high level of exposure to the equity markets, the fund is capturing recent market gains and at mid-year its profitability is already close to 10%. The market outlook remains favourable, he says, and this uptrend is rewarding those customers who are willing to take more risk and whose investment horizon is longer term.