ICELAND – Icelandic pension funds still have a lot of scope for investing outside the country, says the central bank.

“At the end of the year, securities issued abroad accounted for almost one-quarter of the pension funds’ net assets, and this ratio has been steadily growing in recent years,” the bank said in its 2005 annual report. “However, pension funds still have considerable scope for foreign investment.”

A report by the bank last month stated that pension funds are “prominent players” in heavy foreign portfolio investment owing to “large amounts of disposable funds that have problems in establishing a suitable portfolio composition in the domestic market”.

The bank says pension fund assets rose by 21.6% in 2005 to almost ISK1.2trn (€13.6bn) compared to a 19.7% increase in 2004.

Average net assets in 2005 were equivalent to 110.6% of gross domestic product, in comparison with 102.3% in 2004, the annual report revealed.

“Pension funds’ securities portfolios are divided roughly equally between fixed-income securities (bonds) and variable-income (equities and mutual fund units).

“The latter grew by 35.6% over the year, slightly faster than the 32.1% growth recorded in 2004.

“Most of the increase was due to a positive revaluation of more than ISK120bn over the year, while net purchases amounted to only ISK30bn.”

The funds’ domestic equity portfolios grew by ISK58bn.

Last week pension funds in Iceland shrugged off turbulence affecting domestic financial markets, with one industry commentator calling the situation a “blip on the screen”.