APK is one of Austria’s largest pension funds with roughly E1.6bn in assets. Austria’s pension fund industry is still relatively novel but, according to Gunther Schiendl, the fund’s head of investments, the fund has modelled itself on the Dutch and Anglo Saxon model.
At the end of October of this year, the allocation stood at 25% in equities, 67% in fixed income, 8% in cash and 1% in real estate. Schiendl says they run various strategies according to certain risk and return profiles.
At present, the equity allocation has a band of between 20% to 37%, between which it can fluctuate. The fund’s equity share would normally be higher but is slightly deflated thanks to a tactical deviation from the strategic allocation.
That said, the fund has changed its asset allocation and trimmed its equity holdings. At the turn of the year equities represented 27%, down from a peak of 40% last year. In the fourth quarter of last year the fund began to doubt the prospects in Japan and subsequently halved exposure there to 7.5%.
Other interesting developments this year include an accumulation of east European fixed income holdings in the Czech Republic, Poland, Hungary, Slovakia and Slovenia to around 5% of the total assets. Some of these investments have yielded up to 17%, one of the few classes to deliver double digit returns. In addition, APK has begun to lower the grade of fixed income it is willing to invest in. At the latest count it held 25% in corporate bonds (at least A grade, some BBB), 25% in agency bonds and 50% in government bonds. Schiendl says this has been a strategic decision – corporate bonds are now more attractive and issuance by the government has shrunk.
Supporting the investments is a relatively complicated structure. The whole fund is made up of 11 sub fund-type arrangements, called Veranlagungs und Rusikomenschaft (VRGs) which have at least 1,000 members for reasons of risk diversification, and within the VRGs are 28 separate investment vehicles, the majority being externally managed funds. APK places a great premium on information technology as a means of monitoring what goes on in both the VRGs and the underlying funds. APK therefore relies hugely on the use of electronic aids.
As there are 28 funds within the 11 VRGs, in theory there are 308 individual items that need monitoring. APK says that in practice it has to monitor around 100 of the items at any one time since the VRGs rarely use all the underlying funds.
As the VRGs and their funds are under continual observation they can be quickly adjusted by making tactical and strategic adjustments. Performance is enhanced by this continual monitoring that comprises four different aspects.
First of all, APK links with a real time data provider such as Bloomberg and Reuters to provide it with figures independent of the investment trusts. APK uses the market prices of the funds and compares them with the benchmark figures supplied by Bloomberg. This calculation forms the basis of the daily performance analysis, both absolute and relative, of all the taxation vehicles according to the relevant benchmarks.
The second approach to monitoring is a central command that compiles daily performance measurement, calculates daily performance contribution and checks asset allocation for each of the 11 VRGs. According to the APK, all the information is gathered in a central electronic file that then analyses the performance of each underlying fund and each VRG. The VRGs are also checked daily for both their proportionate performance contribution to the overall fund and for their relative asset allocation.
To do this, APK breaks down the various assets into 14 categories and then compares the structure of each VRG with the asset allocation of the fund as a whole.
Data referring to the performance contribution and the asset allocation are archived weekly, something the fund has been doing for a year. It has also stored the data from the funds and the benchmarks since 1997 and uses them to analyse the merits of various hedging strategies.
The third part of the monitoring process the fund highlights is risk management. The fund uses RiskMetrics data to calculate daily value at risk, something that is just part of the overall risk report. As such, the managers are able to stress-test the existing asset allocation or any proposed asset allocations.
The fourth attribute that APK highlights is what it calls its transparent implementation. By this it means that the transactions of every VRG are monitored and the status of every fund can be checked at any time. The entire course of a transaction is documented electronically and can be drawn on at any time.
Finally, it prides itself on an efficient progressing of orders and confirmation of commissions.

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