AUSTRIA - Changing the asset allocation in a portfolio solely on the basis of the members' age is "complete nonsense", as are other strictly "mechanical portfolio management concepts", according to Christian Böhm, managing director of the Austrian multi-employer pension fund APK.

In an interview with IPE, Böhm suggested decreasing equity investments in a portfolio along with the age of a member of a pension fund - the so-called life cycle model - fully exposes members to the risks of the market.

"Why should a pensioner suffer because he retires in a market with low bond yields," he asked.

"There is no correlation between the age of a pension fund member and how the market behaves."

Böhm stressed his Pensionskasse APK is strictly against "mechanistic concepts" such as the life-cycle model, liability-driven investment (LDI) and asset liability management (ALM) as officials believe most of these concepts are too rigid and tie a pension fund down to one strategy for decades, without considering the impact of the markets over time.

APK was a double winner at this year's IPE awards in Vienna, and picked up its honours, according to judges for the fund's use of derivatives to hedge currency risk as well as its approach to emerging market equities. (See earlier IPE story: IPE Awards - full list of 2007 winners)

In comparison to other Austrian Pensionskassen, these strategies paid off for APK and the fund reported an absolute outperformance of 300 basis points to the end of September 2007.

Böhm explained none of the currency products offered by the market had convinced his fund to adopt them, so they therefore decided to use derivatives to hedge the risk.

The problem with currency overlay management, according to Böhm is "there is no manager who understands currency perfectly," further adding "a fund has to decide for itself where it wants to take risks."

He believes the key to realising the potential of various strategies applied to the portfolio is constant review of the reasons why the tactical decisions were made in the first place.

"The world is changing and we have to check whether there are fundamental changes to the framework in which we placed our strategy," he explained.

He added, however, this does not mean the strategy should be completely changed every time but adjustments might need to be made frequently.

Böhm sees a similar premise for 2008 as for this year: "There are no easy recipes, no clear trends, no markets are fundamentally over- or underweighted. We will adjust our portfolio according to where we see structural changes."

According to the APK head the major challenge for Austrian Pensionskassen will be to get a good return from their bond investments - which they are required by the regulator to hold - in an environment of rising interest rates.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email