AUSTRIA - Austrian pension schemes should end the year with a "very positive" return despite market turbulence caused by the US sub-prime crisis, according to the FVPK, the pension schemes' association.
"Yes, equity markets have suffered recently from the US sub-prime crisis. But they are still higher than at the beginning of the year, so I believe Austrian pension funds will have a very positive return for 2007," FVPK managing director Fritz Janda told IPE.
Austrian pension funds returned 5.5% in 2006, another strong year for equities. According to Janda, schemes invested an average of 40% invested in equities and another 50% in fixed income while the remaining portion is split between real estate, alternatives and cash.
Janda noted another mitigating circumstance for the schemes amid turbulent equity markets were the recent increases in bond yields.
However, Johannes Ziegelbecker, head of the multi-employer pension fund ÖPAG, said, going forward, returns for Austrian schemes are likely to be under the 7% annual average achieved since 1992.
"The fact is that such respectable returns cannot continue indefinitely. We are already seeing a downward trend," Ziegelbecker said. ÖPAG is the largest of the Austrian pension funds, with €2.7bn in assets. All told, Austrian pension schemes manage €13bn in pension assets.
Ziegelbecker suggested another factor likely to depress future returns was the schemes' need to build reserves to deal with market turbulence and ageing pensioners. He put their current reserves at 6-7% of total assets.
In a related development, Austria's financial services regulator FMA said the country's pension schemes were virtually unaffected by the US sub-prime crisis. According to the FMA, the schemes only had 0.8% of their money in asset-backed securities (ABS) funds.
"While those ABS funds are 72% invested in the US market, they are invested in debt that is highly rated and backed by a government guarantee," the FMA added.
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