The roller-coaster nature of 2020 was reflected in the performance of Spanish corporate pension funds, which returned an average 1.53% over the course of the year, according to the country’s Investment and Pension Fund Association (Inverco).

This compared with a loss of 1.10% for the 12 months to the end of September 2020, and a gain of 8.7% for calendar 2019.

Xavier Bellavista, principal at Mercer, said: “After one of the most complex years in the history of markets and humankind, most pension fund trustees were pleasantly surprised with positive returns in 2020.”

The Q4 figures brought the average annualised return for Spanish occupational funds to 2.23% for the three years to end-December, and to 2.54% for the five-year period to that date.

But the difference in return between the best and worst performing occupational funds for calendar 2020 was over 6%, according to figures from Mercer’s Pension Investment Performance Service (PIPS).

“This huge difference was also observed in 2019, while in previous years, from 2015, it had been around 4%,” said Bellavista.

The PIPS survey covered a large sample of pension funds, most of them occupational schemes.

“Some fiduciary managers of Spanish pension funds took a number of erroneous decisions during the 2020 crisis”

Xavier Bellavista, principal at Mercer

Bellavista said the difference in performance was because of differences in fund asset allocations, with most of the allocations that had diversified away from European assets performing better.

“It was also because some fiduciary managers of Spanish pension funds took a number of erroneous decisions during the 2020 crisis, provoking significant underperformance versus their benchmarks,” he added.

Bellavista also observed that for the past few years, the larger funds have achieved better returns than smaller funds, by an increasing margin.

He said: “The main reasons for this increase are the lower fees that bigger funds are paying, and also a more diversified investment strategy, which allows them to get better returns.”

Meanwhile, according to Inverco, non-domestic equities continued to be the largest asset class for Spanish pension funds as a whole, with a moderate increase in allocation to 23.9% of assets over the fourth quarter.

For corporate pension funds, Bellavista said that the overall percentage allocation to equity fell on average from 29% at the start of 2020 to 25.8% at the end, not only because of the fall in asset prices during the first few months of the year, but also as a conscious decision by corporate pension funds to underweight the asset class.

The PIPS survey shows that the reduction was mainly in euro equity.

Inverco’s figures showed that for pension funds as a whole, fixed income fell over the fourth quarter of 2020 to 42% of portfolios. Spanish government bonds are still the largest domestic asset class, but over the past five years have almost halved as a percentage of total assets, now amounting to 16.9%.

Within the fixed income allocation for corporate pension funds, the PIPS figures show that the allocation to euro fixed income remained stable, but with some significant changes.

Euro government bonds as well as euro high yield assets increased in allocation during 2020, while cash was significantly reduced.

Non-euro fixed income assets also continued to increase, to a 20% allocation by the year-end, the increase being mainly in non-euro credit.

Inverco said at the end of December 2020, total assets under management for the Spanish occupational pensions sector stood at €35.7bn, an increase of 2.6% on the previous quarter.

The number of participants in the occupational system fell slightly over the same period, to just under 2 million.

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