Two of Spain’s biggest occupational pension funds are cutting equity allocations in the wake of investment losses incurred last year.

Geroa Pentsioak, the multi-sector pension fund for workers in province in Spain’s Basque Country, lost 4.8% in 2018, compared with a 3.8% return from its benchmark.

This also compared with a return of nearly 10% banked by the pension fund in 2017, and was also below the 3.2% average loss for Spain’s occupational pension funds during 2018. It took Geroa’s average annual return since inception in 1996 to 6.1%.

The loss was due to poor performance across all markets, particularly in equities, said the pension fund.

“The main reasons were uncertainty over the trade war between the US and China, the domestic political situation in the US, and political fragility in Europe following the election of populist governments,” Geroa stated.

The Basque pension fund’s equity allocation – 35% of its €2bn portfolio – lost 12.1%.

During 2019 the fund’s equity weighting would be reduced to an average 25%, Geroa said, with a maximum of 30%, in order to avoid high volatility and losses.

Geroa’s portfolio had a 58% allocation to fixed income as at end-2018. Mark-to-market fixed income lost 2.3% and short-term fixed income lost 0.2%, but fixed income held to maturity gained 3.2%.

Meanwhile, investments in the Basque Country and neighbouring Navarra rose to 14.6% of Geroa’s total portfolio during last year. This included its 50% stake in Orza, an asset manager set up to invest in Basque businesses. The investment amounted to 2.6% of Geroa’s portfolio at 31 December 2018.

Geroa Pentsioak provides supplementary pension cover for medium and low-paid workers, and was judged best Spanish multi-employer scheme in last year’s IPE awards.

Rise in dollar softens Caixabank scheme losses

CaixaBank's headquarters in Barcelona, Spain

Caixabank’s headquarters in Barcelona, Spain

Spain’s biggest private sector pension scheme posted a 1.7% loss for 2018, down from a 1.8% gain for the previous year, largely down to poor performance in the fourth quarter of the year.

Pensions Caixa 30’s equities allocation lost 8.6% during the year, compared with a 10.5% gain in 2017. All regions posted losses, with emerging markets declining by 10%. Eurozone equities lost 14.8% while its frontier markets allocation lost 15.1%.

The fund’s control commission has decided to lower the scheme’s benchmark equity exposure for 2019 from 33% to 30% and to raise the fixed income benchmark from 46% to 51%. Within fixed income, it is increasing the weighting to US public debt to defend against market corrections.

Pensions Caixa 30 – the €5.6bn employees’ pension scheme of the Caixabank banking group – also decided to lower the benchmark exposure for alternatives from 21% to 19%, while increasing exposure to private equity and real assets.

In contrast to the equity losses, the scheme’s fixed income allocation made 1.9%, compared with a 4.3% loss the previous year. Non-eurozone bonds were the best performers in 2018, with a 5.5% return, while alternative fixed income gained 4.5%. The pension fund said these returns were lifted by the appreciation of the dollar.

Alternatives made 6.1%, including private equity’s 16.1% return, and real assets, which added 12.8%.

The fund’s portfolio is managed by VidaCaixa, which is owned by Caixabank. At end-2018, equities made up 31.4% of investments, with 40.7% in fixed income and 20.7% in alternatives.

The result dragged down the three-year average annual return for Pensions Caixa 30 to 1.4%. In the three years to the end of 2017 it had gained 3% a year on average.

For the five years to 31 December 2018 the fund added 3.2% a year, compared with 5.5% a year for the five-year period to 31 December 2017.