Spain’s corporate pension funds followed their buoyant calendar 2021 return of 8.09% by a more sobering average of 2.8% for the 12 months to 31 March 2022, according to the country’s Investment and Pension Fund Association (Inverco).

The results brought the average annualised returns for Spanish occupational funds to 3.8% for the three years to end-March 2022, and 2.8% for the five-year period to that date, said Inverco.

According to Mercer’s Pension Investment Performance Service (PIPS), the average return for Spanish occupational pension funds for the 12 months to end-March 2022 – on a basis not weighted by the size of individual funds – was 0.5%, compared with 6% for the 12 months to end-December 2021.

The sharp fall was caused by the negative performance of most funds and asset classes during the first quarter of 2022, said Xavier Bellavista, Principal at Mercer.

The PIPS figures showed the median performance for Spain’s corporate pension funds in Q1 was -3.4%.

“Both euro and non-euro denominated fixed-income assets recorded a negative performance of -2.6% and -3.4% respectively,” Bellavista said. “For equities, the euro and non-euro performance was -7.2% and -4.3%, respectively. The non-euro performance was slightly better because of the US dollar appreciation.”

He added: “Those pension funds with an exposure to inflation-linked assets achieved better returns than their peers. Euro inflation-linked fixed income made a 2.4% return for the quarter, while US inflation-linked bonds returned zero.”

According to Bellavista, better performances also came from pension funds with more diversified strategies and a higher allocation to alternatives.

He said that in Q1, the best performance within alternatives came from commodities and infrastructure, with pension funds returning between 10% and 12% for these asset classes.

In contrast, the worst alternatives performers were long/short and global macro hedge-fund strategies, with returns between -4% and -7%, and high yield, which returned an average -4%.

In the face of rising inflation and interest rates, Spanish pension funds have been reducing the duration of their fixed-income assets, said Bellavista.

“Some of them, especially those using investment consultants, are reviewing their long term strategies to include inflation-sensitive assets, such as inflation-linked bonds, real assets and small percentages in commodities,” he said.

“Some of them are just waiting, assuming a negative performance this year and preparing to build a lower-risk strategy. This is basically coming back to mid to long term-duration government fixed income, and buying equities again, at lower valuations.”

In terms of asset allocation for Spanish pension funds as a whole, Inverco’s figures at 31 March 2022 showed the decline in fixed-income holdings is continuing; the asset class made up 36.4% of portfolios, compared with 41.7% in equities. The latter asset class has maintained record allocations, with non-domestic equities rising to 27.8% of portfolios.

Overall, however, domestic allocations still outweigh investments abroad, making up 44.4% and 38.0% respectively of portfolios, but the gap is narrowing.

Spanish corporate bonds (13.3% of assets) have now overtaken Spanish government bonds (12.8%) in allocation size.

At end-March 2022, Inverco said total assets under management for the Spanish occupational pensions sector stood at €36.7bn, a decrease of 2.9% on the previous quarter. The number of participants in the occupational system had also fallen slightly, at just over 1.9 million.

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