PORTUGAL - Portuguese pension funds returned 8.8% in 2006, down from 9.2% in 2005, according to Watson Wyatt.

The annual return was nevertheless the second best this century, boosted by strong domestic equity returns of 32.5% and other eurozone equity returns of 21.6%.

Hugo Rocha at Watson Wyatt in Lisbon told IPE that  "increased merger and acquisition activity surrounding several large companies such as Portugal Telecom and Banco BPI" lay behind much of the good performance of equities. 

Whereas in 2005 bonds helped boost pension fund returns, fixed rate Euro bonds showed only small positive returns in 2006 as they suffered from rising interest rates.
According to the latest Watson Wyatt survey the average pension fund allocation in Portugal was as follows: 43.8% bonds, 36% equities (incl. 19.7% Portuguese equities), 12.3% property and 2.7% fund of hedge funds.