VIENNA - Austrian pension funds are looking for ways to improve performance in a market where trustees and plan sponsors are shy of equity-led investing.
Although the Austrian government recently raised the limit on equity investment to 50% of plan assets from 40%, market sources don't expect a short-term surge in equity investing. Instead, investment strategists and pension managers are considering ways to diversify their equity holdings, which to date have been focused largely on eurozone blue-chip stocks.
Many Austrian pension plans are under pressure to beef up performance in order to retain clients in a market where domestic insurers are required to provide an annual return of 7.5%, said Harald Thury, head of institutional client marketing at Kathrein & Co., Vienna.
But meeting that target, much less beating it, can be difficult when trustees and plan sponsors prefer to hold around 30% of plan assets in equities.
The 21 billion schilling ($1.3 billion) APK Pensionskasse AG, Vienna, over the next few months will consider making use of specialist equity mandates such as emerging market equities and private equity, said Gunther Schiendl, investment strategist for the fund. The plan also will consider investing in corporate bonds and hedge funds.
"This has been a good year for testing those products for their low correlation to the volatility in the market," said Mr. Schiendl. The pension plan is on the brink of picking a U.S index manager for a new 500 million schilling mandate. He would give no further details on the hire.
Relatively conservative
APK is Austria's second-largest multiemployer fund and manages nine segregated sub-funds for its corporate clients. The equity allocation of each fund depends on each client's liability profile but varies between 30% and 40%, he said.
Most multiemployer funds, which at the end of last year controlled 73% of the 101 billion schilling Austrian pension market, have a relatively conservative allocation to equities of 20% to 35% of assets, said Mr. Thury.
The bond allocation of the nine funds averages out to roughly 60% of assets, with 48% invested in European government bonds and 12% in U.S. and U.K. government bonds.
Currently, all of the fund's assets are outsourced to 10 domestic and international money managers. Currency hedging is done in-house and the fund uses currency forwards to protect its dollar-based investments from any strengthening in the euro.
Martin Cech, asset management coordinator at the 22 billion schilling multiemployer Vereinigte Pensionskasse AG, Vienna, also is looking at investing in asset classes with low correlations - such as sector-based equity funds and corporate bonds - in an attempt to enhance returns. Although Mr. Cech described the fund's current 40% equity exposure as a "progressive" position, compared with other Austrian pension funds, he said overall performance had been under pressure in the face of poor returns from government bonds.
There is an outside chance that the fund will increase its equity exposure to 45% during the next year, he said.
Unilever study
The Unilever Pensionskasse AG over the next few months will conduct its biannual asset liability study, which is expected to conclude in January, said Gunther Reissland, financial director for the fund. He would not give details on the size of the plan.
He said the study is unlikely to yield significant changes to the fund's current allocation of 50% equities and 50% bonds.
Because the fund's asset allocation had been slightly more liberal than the previous government guidelines allowed, it will not increase its allocation to equities over the short term, he said.
A number of Austria's corporate pension funds have a similarly liberal approach to investment and have used a loophole in the regulations to up their total allocations to equities, said Andreas Schneck, manager European sales for Frank Russell Co., London.
Austrian pension plans are allowed to invest their bond allocations in balanced funds so long as at least half of the allocation is invested in fixed-income instruments. This loophole effectively allows pension plans to boost their equity exposure by between 25 percentage points and 30 percentage points.
But only a handful of corporate pension plans take advantage of this loophole, said Kathrein & Co's Mr. Thury.
