Latvia’s mandatory second-pillar funds generated a weighted average 12-month return of 3.24% as of the end of September, according to the Association of Commercial Banks of Latvia (LKA).

The results are a significant improvement on those of the second quarter (-0.16%) and the 0.28% return posted a year earlier.

According to the LKA review, the third quarter was especially favourable for emerging market securities, Brexit notwithstanding, with equities benefiting from stronger economic growth, and government bonds from positive yields.

In Latvia’s case, the best 12-month returns, of 3.68%, came from the four balanced funds, followed by the eight active, equity funds at 3.51% and the eight bond-weighted funds at 2.41%.

Geographically, the funds reduced their exposure to Latvia over the year from 43% to 38.4%, and from Western Europe from 16% to 12%.

Meanwhile, the share of investments in Eastern Europe rose from 20% to 24.6%, and that in North America from 4% to 6.7%.

In terms of asset-class shifts, the active funds decreased, by 2 percentage points, their holdings in equity and equity funds, and in bond and bond funds, to 25% and 52%, respectively, while upping their investments in other funds, bank deposits and cash.

The conservative funds, meanwhile, retained a high share (78%) in bonds.

Over the year, membership grew by 1.2% to 1.25m, and assets by 19.5% to €2.65bn.

The active plans remain by far the most popular, with 64% of the total membership, followed by the conservative plans at 27%.

Since the inception of the three-pillar system in 2001, the second-pillar funds have earned an estimated €432m in investment income net of management and custodian fees, and other charges, while the average savings per member as of end-September breached the €2,000 mark.

The third-pillar funds generated even higher returns, with the 12-month average rising to 4.41%, from 1.55% a year earlier.

The returns of the four balanced funds shot up from 1.41% to 4.02%, and those of the 10 active plans from 1.6% to 5.7%, with the two US dollar-denominated funds outperforming the rest at 6.04%.

At the First Closed Pension Fund, the scheme for the 12,750-odd employees at Latvia’s state-owned electricity utilities and part state-owned telecommunication company, returns edged up from 1.79% to 2.9%.

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