Pension Funds in Red Due to Agrokor

Total Croatia News

The crisis in Croatia’s largest company may be felt in lower pensions for decades.

Over the past year, four mandatory pension funds – AZ, Erste Plavi, PBZ CO and Raiffeisen OMF – have increased the number of members by about 55,000, so at the end of July, they had 1.82 million members. The main reason for this, it is assumed, is the growth in employment, which also means the further growth in the pension funds assets, reports Jutarnji List on August 24, 2017.

In the past 15 years, pension fund members have paid in about 64.5 billion kunas of contributions and, thanks to the realised returns, the total assets of the four funds have reached 87.4 billion kunas, which is 9.2 billion kunas more than a year earlier. Retirement fund managers believe that the members have reason to be satisfied with the way they are managing their money. Still, judging by the latest figures, it is not easy to do business on Croatia’s stock market.

According to the HRportfolio financial website, in the first six months of this year, all four funds achieved negative results with their category B funds, which are the largest and have a moderately conservative profile of investment risk. Negative returns range from -0.97 percent for Erste Plavi to -2.37 percent for AZ fund.

By contrast, in the 12-month period, the yields in this category of investments were quite solid. The primary winner was RBA OMF with a yield of 7.23 percent. According to Iztok Likar, the editor of HRportfolio, “this means that in the last six months the funds did not bring any yield at all.” One of the reasons for the negative result in the first half of this year is “the impact of Agrokor’s situation on the market.”

Still, given that it is an industry with a long-term horizon of investments, the Pension Fund Management Association (UMFO) points out that pension fund yields should be monitored in the long term. “The first six months are a usual occurrence in our business, which is the result of market trends and portfolio structure. In the first six months, the market responses to Agrokor were embedded in the results, and this reaction was much wider than just the directly affected shares of the Agrokor’s companies,” explains the UMFO, adding that Crobex index fell by more than 5 percent as of 31 July, despite robust macroeconomic indicators and expectations, and relatively good business results.

However, the results differ from fund to fund. In addition to the biggest downturn in the last six months, the largest AZ fund, with a 39 percent stake in the total assets, also had the lowest yield in the past year. It was only 1.46 percent, while other funds had a yield of between 6.58 percent to 7.23 percent. According to industry insiders, this is primarily the result of bad decisions on investments in foreign equities.

“With the appointment of the new management in May, the focus on risk management and portfolio diversification has been further improved. Therefore, we are closely monitoring the events and trends in stock markets, individual industries and companies, and accordingly, make continuous portfolio adjustments with the aim of ensuring long-term yields to our members,” says the AZ mandatory pension fund.

“After more than fifteen years of operation, the average annual yield since the establishment of funds of all category B compulsory pension funds is 5.75 percent, while the average annual return of funds of categories A and C, which started operating in 2014, is 9.44 percent for the category A and 6.62 percent for the category C,” explains the UMFO. Given the fact that the pension industry has a long horizon of investments, they add that “the realised returns from the very beginning are still excellent.”

Assets on personal accounts of mandatory pension fund members of all categories have been increased by more than 30 billion kunas, so the average amount on a personal account of a member of a fund who has been in the fund since 2002 is more than 130,000 kunas.

Translated from Jutarnji List.


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