Posted inEquitiesFixed IncomeFRENELUXNORDICSSOUTHERN EUROPE

Pension funds embrace mutual funds

The share of assets allocated to investment funds has grown fastest in Finland, from 12% in 2008 to 26% in 2014. The Finnish pension funds still have a way to go, however, to reach the level of their Belgian equivalents, which have 71% of their assets invested in mutual funds. Pension funds from Denmark (19% of assets), Spain (13%), Italy (10%), Czech Republic and Poland invest least in mutual funds. 

Since pension funds’ direct investment tend to be focused on domestic investments, it’s perhaps no surprise that PwC discovered quite a strong correlation between the percentage of assets invested in mutual funds and the share of foreign investments. For example, pension funds in the Netherlands, which on average have the highest share of foreign investments, also have one of the highest percentages of their assets invested in mutual funds and mandates (50%). Many of the countries with the lowest levels of foreign investments, such as Spain, Denmark, Czeech Republic and Poland, also invest little in mutual funds.  

The Swedish exception

Sweden (and to a lesser extent Germany) is the only country defying this rule. Its pension funds have 58% of their assets invested in mutual funds, but invest little abroad. Moreover, Sweden’s pension industry is also very conservatively invested. No country has a larger share of investments in bonds (75%), and only Germany’s, Italy’s and Spain’s pension funds have a smaller proportion of assets invested in equities.

While pension funds’ allocation to mutual funds has increased significantly, there have been little changes to overall asset allocation. On average in Europe, a third of assets are invested in bonds, 37% in equities, 24% in alternatives (mainly real estate) and the remaining 5% in cash. There are exceptions of course.

As the countries governments have had difficulties in implementing reforms to improve the competitiveness of the economy, Finnish pension funds have taken action to increase return possibilities: they did not only more than double their investments in mutual funds, but have also increased their allocation to equities from 33% in 2008 to 49% in 2014.  

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Part of the Bonhill Group.