Portugal's pension funds produced an average return of 68% on their domestic equity portfolios in 1997. But with only 12% allocated to local equities at the start of 1997, the median return for segregated funds was 13.8% and for pooled funds 14.6%.

This may have been a 'one-year equity special'," says Bernie Thomas of Watson Wyatt in Lisbon, which runs the SEMP survey of Portuguese funds, adding that "1998 is roaring ahead on the equity side". Pension funds started the year with over 18% of assets in home market shares.

The SEMP survey shows the next best performing asset in 1997 was international equities with returns averaging 27.1% for the 2% of portfolios invested at the start of 1997. International bonds, which also only amounted to 2.5% of portfolios produced 12.9%.

Thomas says that the results of individual pensions managers varied widely. "This shows that asset allocation is critical to performance. Managers needed to direct their research into asset allocation rather than stock picking activities."

The difference in performance re-sults between pooled and segregated is probably due to the fact that the more performance oriented managers run both, whereas some of the in-house managers, with poorer re-turns have segregated accounts only.

The survey covers 135 funds and 20 managers all of whom have to be lo-cally based managing some $9bn in assets - 85% of the $11bn market."

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