Pension funds and investors in general faced an uncertain 2010, thanks in large part to the uncertainty around the euro-zone's future.
Despite this instability, schemes still managed to secure mostly strong returns, with many outperforming inflation and some improving their coverage or funding ratio, however marginally.
• Denmark's schemes have enjoyed strong returns so far, with Finanssektorens Pensionskasse, the country's scheme for workers in the financial industry, announcing that its high-risk investment option returned just shy of 26%, while its risk-averse fund reported 13.3% growth. However, effects of the recent market volatility are still being felt, with the five-year averages on both options at only 4.5% and 6.7% respectively.
The DKK90.6bn (€12.2bn) Industriens Pensionskasse even recorded a 12% rise in reserves to DKK17bn. Managing director Laila Mortensen noted that this now allows the scheme to invest in higher-risk products without jeopardising its members' future livelihood.
Interest rate hedges also paid dividends for some. Erik Hallarth, AP Pension's head of investments, for example, attributes some of his scheme's 10% returns to the tactic. He also singled out equity and alternative investments as a reason for optimism, while explaining that the interest rate hedges performed despite an interest rate rise towards the fourth quarter of the year.
• Not every fund was quite as fortunate as those in Denmark. Ireland's National Pension Reserve Fund's overall returns were severely diminished due to its exposure to the country's troubled baking sector.
The sovereign fund, which owns 93% of Allied Irish Bank and holds a significant stake in Bank of Ireland, saw 11% growth in its €14.9bn discretionary portfolio hurt by losses of 8% due to its stakes in the troubled institutions, reducing its growth to just over 4%.
The country's other schemes fared better, with average returns of 11% across its pension managed funds boding well for schemes aping growth recorded in the NPRF's main portfolio, while companies listed on the Irish Stock Exchange saw their coverage ratio, on average, increase by 1 percentage point to 77%.
• Defined benefit schemes in the UK fared similarly, according to State Street Investment Analytics' (SSIA) pension and charity fund index, which attributed the 13% returns largely to a rallying equity market, fuelling a 15% rise in value over the year.
Jeanette Patrizio, vice-president of SSIA said schemes that did not change their asset allocation recorded good returns, despite volatile markets sometimes causing a 1% shift a day. "Local authority pension funds also benefited from a higher commitment to equities and outperformed corporate schemes last year," she added.
Private equity also performed strongly, leading hedge funds' 11% returns by 8 percentage points, while volatile markets reported a slight shift in asset allocation as equity weighting fell to 49%, with the 2 percentage point loss shifted to fixed income portfolios.
• Switzerland features as something of an aberration, with the cross-section of 100 Pensionskassen examined for Credit Suisse's Penisonskassen index offering up significantly lower returns than other countries.
With less than 30% of assets invested in the equity market, the schemes returned 2.9%, barely above the 2.88% they must return according to law, but outperforming the 10-year annualised return of just 2%. However, due to the country"s low inflation rate of
only 0.5% in December, this still represents real growth for the members.
• Finally, the young Romanian pension system concluded its third year with growth of 15%, bringing its total AUM to RON4.3bn (€1bn), according to the Romanian Pension Funds' Association (APAPR).
Despite these strong figures, growth over the past three years averaged out to 15.2%, compared with the 16.2% annualised returns of 2009 and was assisted by a strong stock market, as well as outperforming the country's high inflation rate of 8%.