Spain’s corporate pension funds mirrored the generally positive performance in financial markets by returning an average 8.09% for the 12 months to 31 December 2021, according to the country’s Investment and Pension Fund Association (Inverco).
This compared with 9.77% for the 12 months to 30 September 2021.
The results brought the average annualised returns for Spanish occupational funds to 6.12% for the three years to end-September 2021, and 3.61% for the five-year period to that date, said Inverco.
According to Mercer’s Pension Investment Performance Service (PIPS), on a basis not weighted by the size of individual funds, the average return for Spanish occupational pension funds for calendar 2021 was 6%.
The PIPS figures also showed a dispersion of around 4% for 2021, between the best and worst performers with similar risk levels.
Funds with more sophisticated investment strategies are achieving a better performance, according to Xavier Bellavista, principal at Mercer.
“We will implement changes in funds’ asset allocation sooner than expected, to prepare them for inflationary scenarios”
Xavier Bellavista, principal at Mercer
Bellavista highlighted two specific trends which have been instrumental in this: the increasing diversification from euro-denominated assets to non-euro assets, and growth in the use of alternatives.
“The funds which adopted these strategies earlier, and to a greater extent, are the ones getting a better performance in recent years,” he said.
Asset allocation changes
At a more tactical level, he said the war in Ukraine has not resulted in Spanish trustee boards taking any short-term decisions on portfolios.
But he observed: “What we are doing is accelerating our inflation discussions with clients, and we will implement changes in funds’ asset allocation sooner than expected, to prepare them for inflationary scenarios.”
Bellavista continued: “We expect to increase allocations to real assets, liquid alternatives – hedge funds and absolute return – and commodities. When doing this, we will probably adjust the diversification of equity portfolios, reducing geographic approaches and moving to more global mandates.”
He said that Mercer would also increase allocations to emerging markets, in some cases, with specific allocations to China.
In terms of asset allocation in Spanish occupational pension fund portfolios, Inverco’s figures for 31 December 2021 showed that there is now clear water between the average overall equity allocation – 41.8% of portfolios, compared with 38.2% in fixed income. Inverco said the ascendancy of equity weightings is largely due to the buoyancy of equity markets.
Non-domestic equities, still the largest asset class overall, boasted a 26.9% allocation, while domestic equities formed 14.9% of portfolios.
The difference between domestic and overseas weightings continues to gradually narrow, though domestic investments were still dominant at end-2021, with a 47.5% allocation overall, compared with 36.8% invested abroad.
Spanish government bonds had fallen back slightly to 14.2%, and Spanish corporate bonds 14.0%, of assets.
Cash rose sharply from 6.8% to 7.6% of portfolios in the fourth quarter.
At the end of December 2021, Inverco said total assets under management for the Spanish occupational pensions sector stood at €37.8bn, an increase of 1.8% on the previous quarter.
The number of participants in the occupational system had risen slightly, at just under two million.
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