Austrian pension funds are ramping up their allocations to private equity as their shift into illiquid assets – a trend that began during the low interest rate era – continues to accelerate.
According to the Financial Market Authority’s (FMA) 2024 annual report, investments in alternative funds accounted for 26.1% of Austrian pension funds’ total €28.5bn in assets, well above the European average of 21%.
Private equity recorded the strongest growth among asset classes, rising by 55.1% year-on-year, followed by private debt (31.7%) and corporate bonds (14.2%), the report showed.
Mercer expects allocations to private markets to continue to grow, with pension funds increasingly viewing them as vehicles for impact investing, said Michaela Plank, managing director of Mercer Austria.
“Private equity is a more interesting strategy than investing in liquid equities – higher returns can be achieved with less volatility, and they have a low correlation to public equities and bonds,” she said.
APK Pensionskasse
APK Pensionskasse invests indirectly and primarily through closed-end funds in private equity, hedge funds, private debt, infrastructure and real estate to make its portfolio more resilient to stress, improve diversification and generate stable long-term returns.
“We have established the largest allocation in private equity. We view private equity as a replacement for, or diversification of, public equity,” said Michael Bujatti, senior investment manager for alternative investments at APK Pensionskasse.
Returns on alternatives are broadly in line with expectations but come with significantly lower volatility, he added.
APK is now targeting opportunities for above-average returns in private equity.
“Rapid technological progress – AI, robotics, cryptocurrencies – and the associated innovations are opening up numerous opportunities for new companies, from which we intend to benefit,” Bujatti said.
He added that APK also sees opportunities in the European real estate value-added segment, driven by refinancing pressures and a weak transaction market.
However, the pension fund is taking a cautious approach to senior private debt financing, even though it recognises the potential long-term benefits of open-ended fund structures and lower costs compared with existing options.
Private debt, infrastructure equity and infrastructure debt have all expanded strongly in Austrian pension portfolios, benefiting from low correlation to liquid assets such as equities and bonds, partly due to differing valuation principles.
Bonus Pensionskasse
“Including these asset classes can have a very positive impact on the overall portfolio. There is certainly return potential, especially in the equity area,” said Claudio Gligo, chief investment officer of Bonus Pensionskasse, the multi-employer scheme owned by Zürich and Generali.
Bonus continues to see infrastructure equity as attractive. “This also applies in part to projects outside the renewable energy segment,” Gligo said.
The fund’s infrastructure equity exposure remains focused on renewable energy generation, with new wind and photovoltaic projects in developed markets helping meet rising power demand, he added.
High-quality infrastructure debt provides protection through collateral and strong covenants, which has made the asset class a long-term component of Bonus Pensionskasse’s portfolio, the chief investment officer said.
However, the fund remains cautious on both private debt and private equity.
“Especially the volume issued in private debt has increased massively, and it remains to be seen how this segment will develop,” Gligo said.
Alternatives are seen as portfolio stabilisers that balance traditional investments and support performance in the current environment, said Gerald Moritz, managing director of Moritz Consulting.
Private markets come with liquidity challenges, but pension funds are already responding by integrating liquid alternatives into their investment strategies, he added.
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