As pension funds across Europe release their preliminary results for 2011, the issue of
the sovereign debt crisis is likely to dominate. Whether it be a shift in asset allocation - away from the few remaining periphery bonds generally held - or the fact liabilities escalated after a country's debt was deemed a safe haven and yields artificially depressed by stimulus, the fallout caused by the euro's troubles will remain key.

The problem of the safe haven has hit underfunded Irish schemes particularly hard. Linked to AAA-rated euro-zone debt, such as Bunds, the country's schemes were particularly affected by Germany's strengthened status in the wake of escalating yields that plagued countries such as Italy.

Unsurprisingly, Mercer's head of defined benefit (DB) risk in Ireland, Liam Quigley, predicts DB funds will invest heavily in interest rate and inflation hedging, as well as shift further away from turbulent equity markets to other bond holdings.

According to Aon Hewitt's calculations, Ireland's schemes lost 2.45% over the course of 2011, despite a slight upturn of more than 3% in December, aided by a positive economic outlook in the US.

However, the country's National Pensions Reserve Fund was able to outperform the average - which, according to its own estimates, amounted to negative returns of 3.5% over the Irish managed fund industry - with its discretionary portfolio growing by 1.1% over the 12 months. Despite this, its exposure to the country's troubled banks - accounting for two-thirds of assets at year-end, meant assets under management fell by €8.2bn since the end of 2010.

The "very difficult" environment facing pension funds was, according to PensionDanmark's managing director Torben Möger Pedersen, navigated by his scheme by reducing the its risk profile. The DKK110.3bn (€14.8bn) scheme grew by DKK10.6bn, with member returns as high as 11.7%.

It shifted investments towards property and alternatives - expanding its holdings in offshore wind farms - while investing in Danish government bonds, as fellow scheme ATP now does almost exclusively, when accounting for its sovereign debt exposure.

PFA Pension was also able to put a positive spin on a turbulent year, reporting its with-profits plans returned an average of 11.3% last year, while group CEO Henrik Heideby was keen to highlight that 2011 was the tenth consecutive year of positive returns for the scheme. It reported preliminary capital growth of DKK27.3bn last year, with all investments - save for its equity holdings - growing over the period.

The UK reported modest positive returns, with State Street Investment Analytics' preliminary index for UK DB schemes returning 3% over the year.

Jeanette Patrizio echoed Pedersen's sentiment that it had been a very difficult year, but highlighted that it had led to trustees paying increased attention to value-at-risk. She said: "Equity markets continued to be very volatile, with daily moves of 1% or more almost the norm. The big sell-off in the third quarter resulted in negative 12-month returns from most equity regions."

State Street estimated that only in one region would investors have seen growth, highlighting North America's 1% increase in value year-on-year compared with a 17% decline in emerging market equities.

However, the company highlighted some of the benefits that would have been seen by gaining exposure to gilts, with UK government debt returning 16%, while its index-linked counterpart returned 23% on the back of high inflationary figures in the country.

While Dutch schemes had yet to release preliminary figures at the time of publication, it is likely that they will have similarly modest or flat returns.