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Overseas equities drive up Icelandic pension assets

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  • Overseas equities drive up Icelandic pension assets

ICELAND - Net pension fund assets at the end of March increased by approximately ISK44bn to ISK1.846trn (€11.3bn) as the value of foreign equity investments increased, figures from the Central Bank of Iceland have revealed.

The monthly update on pension fund assets showed at the end of March approximately ISK1.07trn was invested in fixed income securities, with ISK384bn invested in Housing Financing Fund (HFF) bonds.

Meanwhile ISK678.9bn was invested in variable income securities, such as equities mutual funds and foreign equity funds, while the remainder of the net assets were invested in cash and deposits and alternative assets.

The findings, based on a sample of the largest Icelandic pension funds, showed assets increased approximately 2.4% over the month, and 14.4% over the year to 31 March 2010.

Investments in foreign equity fund reported the largest increase as assets in this portfolio increased by more than ISK20bn from ISK319.9bn to ISK340.6bn. However, HFF bonds also saw the value of investments increase from ISK372.4bn to ISK384.1bn in March.

Confirmation of the growing assets within pension funds follows recent comments by Már Guðmundsson, governor of the Central Bank of Iceland at the European Pension Convention that while the Icelandic pension system "took a hit, it withstood the shock" of the financial crisis.

He admitted that pension funds did suffer significant falls, with the average rate of return in 2008 standing at -22%, while pension assets as a share of GDP dropped from 134% in 2007 to 119% in 2009.

But he added: "Let us remember that part of this is a correction. The asset values of the boom and the associated rates of return on pension funds, as well as banks, had a significant element of froth. To some extent, they were never real."

Guðmundsson argued that despite the drop the pension system is still in tact, and remains strong "provided that we learn the lessons of the financial crisis and make it a once-in-a-lifetime event".

He added: "We need to learn the lessons on incentives and risk management. We need to learn the lessons on accounting and valuations. We need to learn the lessons on regulation and supervision. We need to learn the lessons on macroeconomic management and the interplay between the macroeconomy and the financial sector.

"I note with pleasure that the pension funds are going to draw their own lessons on where they might have done better; for instance, by being more critical going forward, as indeed we all must be." (See earlier IPE article: Icelandic schemes to learn from financial crisis).

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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