Romania’s mandatory second-pillar pension funds continued to weather local market weaknesses.

According to the Romanian Pension Funds Association (APAPR), the funds’ weighted annual average return fell to 2.65% as of the end of June 2016, from 4.84% a year earlier.

The result was nevertheless higher than that in the first quarter (1.7%), with all seven funds generating positive returns, ranging from 1.8% to 3.3%.

Mihai Bobocea, adviser to the APAPR board, said: “Returns are obviously down because of the low-interest-rate environment, strongly negative inflation, falling stock prices and also the underperformance of bonds.

“However, with active management and good diversification, pension funds still managed to stay in ‘green’ territory and post positive returns, which is valuable for plan members.”

Bobocea also stressed that the second pillar had, since its inception in May 2008, produced a robust annualised return of 9.49%.

Brexit, according to Bobocea, had a marginal effect on the local stock market and even less of an impact on local pension fund performance.

“The stock market’s biggest problem is that it’s not really growing or progressing in any way,” he added, citing a lack of new IPOs and SPOs, no depth and little liquidity.

The IMF, in its May 2016 report on Romania, made similar observations and urged the government to fast-track state-owned enterprise privatisations, including through IPOs, to provide additional supply for the equity market.

According to Romania’s Financial Supervisory Authority, the second-pillar funds invest the biggest share of their assets in government bonds (65.5% as of the end of June 2016), followed by equities (17.3%), bank deposits (7.6%), corporate bonds (3.9%) and UCITs (3.7%).

The most noticeable shifts in asset allocation over the year were an increased share in bank deposits, of 3.4 percentage points, while the equity share fell by 1.9 percentage points.

Second-pillar membership grew over the year by 4.2% to 6.68m, and assets by 27.2% to RON27.6bn (€6.1bn).

Part of the asset growth resulted from this year’s increase in the contribution rate, from 5% to 5.1%.

The smaller third pillar also averaged a positive return, of 1.37%, down from 3.91% in June 2015.

Assets increased by 19% to RON1.4bn and membership by 9.3% to 399,276.

The number of funds shrank by one to 11 following the merger of Aegon and Eureko’s third-pillar operations.