Spain’s corporate pension funds mirrored the generally negative performance in financial markets during 2022 by losing an average 8.8% for the calendar year, according to the country’s Investment and Pension Fund Association (Inverco).

In the 12 months to end-September 2022 Spanish pension funds recorded a slightly lower decline of -7.4%, compared to a fall of 8.1% in 2021.

The results brought the average annualised returns for Spanish occupational funds to 0.3% for the three years to end-December 2022, and 1.3% 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 2022 was -9.5%, the worst return since 2008, according to Xavier Bellavista, principal at Mercer.

However, Bellavista said: “Pension funds achieved quite a positive performance compared with their respective benchmarks. In general, they maintained lower durations than their benchmarks, and reduced their equity exposure.”

During the course of 2022, the PIPS figures showed that funds taking higher risk incurred higher losses, although the more risk-averse funds did not avoid a negative performance either.

The best fund performances were around -6%, while the biggest losses were around -14%.

There was, however, a very significant dispersion of return among funds with similar levels of risk – for example, funds with median risk had a dispersion of return between -6% and -12%.

Not surprisingly, Mercer’s figures show that the equity allocation is now the lowest it has been for the past few years.

Bellavista said the lower exposure occurred not only through the market downturn, but also because of an active decision to reduce allocations.

He added that corporate pension funds have also reduced their allocation to eurozone fixed income assets – government bonds and credit – to increase cash and reduce duration.

But the PIPS figures show that allocations to non-euro zone fixed income have been increased, in order to benefit from higher yields.

And alternatives – especially private markets – continue to grow in importance.

As regards asset allocation for Spanish pension funds as a whole, Inverco’s figures at 31 December 2022 showed the gap between domestic and foreign allocations is still narrowing, with 43.5% of portfolios invested in Spain and 38.4% abroad.

Inverco said the year-on-year increase in foreign allocations was mainly because of the rise in foreign fixed income, which now makes up 12.8% of portfolios, compared with 10.0% at end-2021.

Meanwhile, the allocation to Spanish government fixed income fell from 14.2% to 12.0% over the same period, with a fall from 14.0% to 12.6% in Spanish corporate bonds.

In total, fixed income investments made up 37.4% of portfolios at end-2022, with 40.2% in equities, the recent slight decline in the latter not materially affecting the long-term upward trend.

At the end of December 2022, Inverco said total assets under management for the Spanish occupational pensions sector stood at €34.6bn, an increase of 0.5% on the previous quarter.

The number of participants in the occupational system had risen slightly during the fourth quarter, at just under 2 million.

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