AUSTRIA - Disappointing hedge fund returns have prompted Austria's largest pension fund to "streamline" its portfolio, the chief investment officer of Pensionskasse VBV has said, arguing that fund-of-funds were "virtually dead".

Speaking to IPE, Günther Schiendl said the fund would distance itself from the three big ratings agencies  for domestic corporate bonds and that he had been "disappointed" by some hedge fund strategies over the past year.

Last year, the VBV's hedge fund portfolio - which makes up around 5% of the €5bn total assets - yielded 0% compared to -8% for an average hedge fund.
"From a relative point of view this is really good but we have seen that even the so-called 'miracle workers' have the same problems in high volatile markets as us," Schiendl continued.

He noted that global macro strategies had "disappointed" and that while he wants to remain invested in hedge fund strategies, he would further "streamline the portfolio", removing funds of hedge funds and pooled strategies.

"Regulators are demanding more and more transparency and funds get only very small allowances for non-transparent products in their portfolio. That is when many investors start to think whether these products even make sense," said Schiendl.

For him most fund-of-fund and pooled structures are therefore "superfluous" and "virtually dead".

On the bond side, the VBV last year created dedicated Austrian equity and bond funds to "underline its role as an equity and debt financing provider for Austrian companies", Schiendl noted.

For its domestic corporate bond portfolio the Pensionskasse has chosen bonds according to credit assessments by Austrian institutions, such as the country's national bank  - as allowed under Austrian regulations -  and no longer uses the investment grade ratings of the three major US ratings agencies.

However, Schiendl said he did not subscribe to the "other new mantra of today" - that corporate bonds offered better prospects than government bonds.

"You have to look at how they are priced and I think the bond world will turn around again in the course of the year," he explained.

He was also less enthusiastic about a possible change to the law governing Pensionskassen, which would allow the funds to designate corporate bonds as held-to-maturity, hitherto only possible for government debt.

"This is good in principle but as we have seen with government bonds: the world can change quite dramatically over a short period of time," Schiendl warned.

Therefore, he would only make use of the new provision "very cautiously" and noted that it did not make sense at all for low-yielding corporates.
"In fact, this provision comes two to three years late as it would have been really great to have been able to lock in corporate yields of between 6% to 8% back then," Schiendl said.

For more information on the Austrian second pillar see
IPE's April issue.