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Linz AG fund reviews value-at-risk approach

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  • Linz AG fund reviews value-at-risk approach

AUSTRIA - The €180m pension fund for the Austrian energy and telecommunication company Linz AG is hoping investment markets will stabilise soon so it can change its asset allocation approach.

The Pensionsinstitut (PI) Linz AG occupational pension scheme had to postpone plans autumn to introduce a value-at-risk approach on its investment strategy.

"No prudential risk profile could be drawn up at that point in time," said Gerald Hinterleitner, manager at the PI Linz AG.

Decisions regarding the introduction of a risk management system and a value-at-risk approach were postponed to autumn this year in the hope that markets would achieve a certain level of stability by then.

In the meantime the strategic asset allocation introduced in 2007 for early 2008 remains in place.

This means a minimum of 50% has to be invested in bonds while the rest of the portfolio has to be diversified into at least three other asset classes holding a minimum share of 5% each.

The fund is invested in bonds, equities, indirect real estate and hedge funds with three asset managers  - Innovest, Carl Spängler and Kepler - making the investments.

The fund had decided to change its asset allocation from a required 70% minimum bond exposure from 2007 when interest rates were rising.

However, the portfolio structure shifted back to 80% bonds when the markets collapsed in 2008 as other assets were devalued or sold.

The annual long-term return for the fund is 1.36% since inception in 2003 as  it generated a -13.58% performance for 2008.

The Pensionsinstitut is not a pensionskasse but a state-supervised occupational pension scheme created 100 years ago as an unfunded supplementary retirement benefit for employees in the energy sector, though it switched to a funded scheme in 2003.

The fund has 4000 members and comprises employees of the Linz AG, while companies in which the Linz AG holds 25% or more can opt to join the Pensionsinstitut.

Membership is compulsory once a company has joined and employees pay at least 3% of their basic income into the fund, while for incomes above a certain level a 10% contribution is paid and the companies mirror these contributions.

The Pensionsinstitut Linz AG has recently been caught in political crossfire as some politicians have condemned any form of investment as "high-risk" speculation in the wake of the financial crisis.

However, the government has stressed its commitment to a funded second pillar and agreed on a few points of the pensionskassenreform which is set to pass parliament in fall.

The reform will see a voluntary choice for a life-cycle model being introduced as well as a safety pension with very low risk profile.

Furthermore, new entries into existing contracts will not be granted the old calculation rates which have proven to be too high and the switch between the insurance-based BKV and Pensionskassen will be facilitated. (See earlier IPE story: Austrian pension fund doubts value of reform)

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 julie.henderson@ipe.com

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