Russia’s non-state pension funds (NPFs) generated an annual weighted average investment return of 6.3% on pension savings in the first half of 2017, according to sector regulator Bank of Russia (CBR).

The return on pension reserves – which finance current pension payouts – was 4.7%, on a par with the inflation rate for the period.

The €28.6bn State Management Trust Company, which runs the pension system for state-owned Vnesheconombank (VEB), outperformed the NPF average, with the expanded and state government securities portfolios returning 8.8% and 11.4% respectively.

The lower return of the NPFs was largely due to their increasing investment in equities, which as a share of the portfolio grew to 17.8% from 13% a year earlier. This compared to just 0.2% in VEB’s expanded portfolio.

The investment policy on NPF reserves was even more aggressive, with shares accounting for 22.5% and mutual funds a further 16.1%

Last November’s election of Donald Trump as US president led to expectations that the sanctions imposed following the annexation of Crimea would be eased or even lifted, sparking a bull market for Russian stocks.

This lasted until February, when deteriorating US-Russian relations caused stock prices on the Moscow Exchange to plunge: over the first half of the year the composite index of the 50 most liquid stocks fell by 29.1%.

By contrast, the exchange’s corporate bond index rose by 12.4%, tempering the NPFs’ equity losses as this asset class accounts for the biggest share of their portfolios (51%) as well as the biggest allocation by VEB (41%).

Despite the weaker NPF performance, especially among the larger, more equity-weighted funds, the CBR emphasised that, over the long term, returns remained relatively stable.

The NPFs have also grown at the expense of VEB, with their total investment portfolio as of end-June up by 18.8% year-on-year in Russian rouble terms to RUB2,415.4bn (€37.3bn), while VEB’s assets fell by 3.8% to RUB1,839.4bn.

Over the period the total number of NPF clients grew by 14.9% to 34.4m.

CBR’s review of the first six months’ performance also highlighted continuing consolidation among the NPFs. As of the end of June 2017, the number of licensed funds had shrunk to 69, from 89 a year earlier.

In the second quarter of 2017 two funds had their licences revoked, while NPF Gazfond Pension Savings absorbed three other funds, propelling it into second place in terms of assets, after NPF Sberbank.

The market has also become more concentrated, especially among the 38 NPFs that signed up to the Deposit Insurance Agency’s guarantee scheme, a condition for participating in compulsory pensions provision.

Here, the top 10 funds have 93.4% of the client base and manage 92.6% of savings.