Croatia’s mandatory pension funds hold EUR 29.1 billion. That is about a third of the country’s annual GDP, more than four fifths of the value of every share listed on the Zagreb Stock Exchange, and it belongs to about two and a half million people, most of whom will not see a cent of it for decades. The number gets quoted every month. What rarely gets asked is where it came from and where it went: how much of it was ever paid in by anyone, and what the money actually bought once it arrived.

The mechanics are simple. A fund’s net assets change for three reasons: contributions come in, payouts go out when members’ accounts are closed, and the portfolio earns or loses money. HANFA publishes the first two in its monthly reports, so the third is what is left over once you subtract them from the change in net assets. We call it the investment result, and it is the broadest possible definition: interest, dividends, realised and unrealised gains, FX effects, all after fees. HANFA has published payouts since 2019, so that is where the year-by-year picture starts.

Second pillar net assets bridge, 31 Dec 2018 – 31 Aug 2026 (EURbn)

Source: HANFA, InterCapital Research

From the end of 2018 to August 2026, net assets grew from EUR 13.0 billion to EUR 29.1 billion. Members paid in EUR 9.7 billion, EUR 2.5 billion was paid out, and the funds earned EUR 8.9 billion on the portfolio, so 55 % of the growth came from markets rather than from contributions. The earnings were anything but even: EUR 2.4 billion over 2019–2021, a loss of EUR 0.9 billion in 2022, and EUR 7.4 billion over 2023–August 2026.

Year by year, the funds earned more than they collected in six of the eight periods. The two exceptions are instructive. In 2020 the investment result was a thin EUR 152 million, about 1 % of opening assets, as the March sell-off ate most of the year. In 2022 the funds collected EUR 812 million net of payouts and still ended the year EUR 107 million smaller, because the portfolio lost EUR 919 million, roughly 5 % of opening assets, in the bond and equity repricing of that year. Since then the result has been between EUR 1.7 and 2.0 billion a year, and the first eight months of 2026 brought EUR 1.8 billion against EUR 0.9 billion of net inflow.

Second pillar change in net assets by component (2019 – Jan-Aug 2026, EURm)

Source: HANFA, InterCapital Research

The chart makes an obvious but underappreciated point about risk. The net inflow is the economy showing up in the accounts: it follows employment and wages, and it sat between 4.6 % and 5.7 % of opening assets in every year from 2019 to 2025, pandemic included. The investment result over the same years swung from minus 5 % to plus 10 % of opening assets.

Both parts of the net inflow are rising. Net contributions roughly doubled, from EUR 889 million in 2019 to EUR 1,751 million in 2025, as employment and wages grew. Payouts went from EUR 151 million to EUR 503 million over the same years, from 17 % of contributions to 29 %, and reached 31 % in the first eight months of 2026. This is still a young system. Membership was compulsory only for people under 40 in 2002, so the first generation for whom the second pillar was never optional, those born in 1962, reaches the statutory retirement age next year. Everyone who has drawn a second-pillar pension so far was either an older voluntary entrant or an early retiree. The real payout phase is only about to begin, and when it does, a system that today is a net buyer of securities every year will gradually turn into a net seller. Payouts at under a third of contributions suggest that moment is still well over a decade away. The climb of the last seven years says it is coming; how fast is something we will be watching.

Over the full life of the system, since 2002, HANFA’s cumulative totals give EUR 19.4 billion of net contributions, EUR 3.5 billion of payouts and EUR 13.3 billion of investment result. Of every ten euros in the second pillar today, workers and employers paid in a little over five and markets added the rest. The ratio varies enormously from one member to the next, since a 2002 entrant has had two decades of compounding and a first-time employee has had none, but for the system as a whole it is a fact worth keeping in mind whenever contribution rates are debated.

So much for where the money came from. The natural place to start with where it went is the market it is most often expected to support, local.

Second pillar net contributions vs. ZSE equity turnover (2014-Jan-Aug 2026, EURm)

Source: HANFA, ZSE, InterCapital Research

In every year since 2014, net contributions into the second pillar have exceeded the total annual turnover in shares on the Zagreb Stock Exchange, order book and block trades combined. The ratio was 1.6 times in 2014, around 3 times in 2021–2022, 4 times in 2023–2024 and 2.3 times in 2025, when equity turnover more than doubled to EUR 765 million. Over twelve years, EUR 12.0 billion went into the funds while EUR 4.8 billion worth of shares changed hands on the exchange. The first eight months of 2026 look the same at a higher level: EUR 1,256 million of contributions against EUR 585 million of turnover.

None of this says anything about what the funds want to buy. It says what they can buy. A market that trades in a whole year less than half of what the funds collect in that year cannot absorb the marginal euro, however willing the buyer, so the marginal euro has to go somewhere else.

HANFA’s table C-4 shows us where, by asset class and by domestic versus foreign issuer, at every month-end since August 2014. The figures below sum the three fund categories, but in practice they describe category B, the default, middle-risk category that holds EUR 25.8 billion or 88 % of the system; the equity-heavier category A and the bond-heavy category C hold about EUR 1.9 billion and EUR 1.5 billion between them.

Domestic vs. foreign assets of mandatory pension funds (Aug 2014 – Aug 2026, % of net assets)

Source: HANFA, InterCapital Research

When the series begins, domestic assets were 86 % of net assets and foreign assets 13 %. For six years almost nothing happened: at the end of 2019 the split was still 84 % to 16 %. Then it moved, and by August 2026 it stood at 54 % to 45 %. The system is still mostly domestic, but a gap of more than 70 percentage points has narrowed to under 10.

Mandatory pension funds investment structure at year-end (2014 – Aug 2026, % of net assets)

Source: HANFA, InterCapital Research

The more detailed data shows that one line did almost all of the moving.In 2014 the second pillar was essentially a holder of Croatian government bonds: 72 % of net assets, with domestic equities at 10 %, foreign equities at 8 % and everything else in single digits. The government bond share stayed between 68 % and 73 % through 2019, was still 58 % at the end of 2022, and then fell to 53 %, 44 %, 38 % and 35 %. Foreign government bonds, below 5 % of net assets at the end of 2022, were 19 % by August 2026. Domestic equities went from 10 % to 15 %, foreign equities from 8 % to 12 %, foreign funds and corporate paper from 4 % to 15 %.

Three things changed around 2023, and none of them was a decision taken in any fund’s investment committee. The first is regulatory. The Mandatory Pension Funds Act requires that at least 60 % of a category B fund’s assets, and 90 % of a category C fund’s, be held in the currency in which pensions are paid. Until the end of 2022 that currency was the kuna, and the only sizeable kuna-denominated asset class was Croatian government debt, so the rule was in practice a domestic bond requirement. From 1 January 2023 the currency of payment is the euro, and any euro-denominated sovereign bond satisfies the same rule, whether issued by Croatia, by another euro-area member or by a non-euro EU member borrowing in euros. The second is price. Croatia’s rating moved from BBB- in 2019 to A, and Croatian yields converged on the euro-area core to the point where, at times, the euro bonds of some non-euro EU members such as Poland offered more than Croatian paper with a comparable or better rating. For a euro investor that is a better price for similar risk, in markets many times deeper. The third is the domestic auction. Croatian banks, sitting on excess liquidity since euro adoption, have become the dominant bidders for new domestic government issues, and the state has in parallel placed part of its borrowing with households through retail bonds and bills. The funds have not been shut out of that market; they have simply not needed to be the marginal buyer in it.

It is worth being precise about what fell. The domestic lines shrank as a share of the portfolio, not in euros. Holdings of Croatian government bonds rose from EUR 6.3 billion to EUR 10.2 billion, and domestic equities and GDRs from EUR 0.9 billion to EUR 4.2 billion. The funds hold more of both than ever. What changed is where the growth went.

Change in mandatory pension funds holdings by segment (31 Dec 2014 – 31 Aug 2026, EURm)

Source: HANFA, InterCapital Research

In the end, net assets grew by EUR 20.3 billion between the two dates. The single largest destination was foreign government bonds, up EUR 5.4 billion from a base of EUR 62 million. Domestic government bonds added EUR 3.9 billion, domestic equities EUR 3.3 billion, foreign equities EUR 2.7 billion and foreign UCITS/ETFs EUR 2.4 billion. About 60 % of the growth went abroad and 40 % stayed at home. Sovereign paper is still more than half of the portfolio, but an increasing share of it is foreign.

One caveat: a change in a holding mixes what was bought with how the existing position was revalued, and HANFA’s aggregate tables do not separate the two. For segments that started from nothing, such as foreign government bonds, the increase is purchases by definition. For domestic equities, which rose 4.7 times over a period in which the market itself roughly tripled, the aggregate alone cannot say how much was bought and how much was marked up.

None of this is news; the second pillar has been too large for its home market for years. What the numbers add is the cause and the consequence in one place, and one thing they make clear: the money to keep more of it at home exists. What is missing is paper worth buying, new listings of real size and quality, enough of them to absorb even a fraction of EUR 1.5 billion of fresh contributions a year. The constraint is not on the demand side of the Zagreb Stock Exchange. We welcome every quality listing that comes to market, and hope there will be many more of them in the years ahead.

Data note. Net assets, net contributions and payouts on account closure are taken from HANFA’s monthly reports on pension funds (December issue for each year, August 2026 for the current year), tables 1.5, 1.7 and 1.8 (tables 7 and 9 in the pre-2019 format). Investment result = change in net assets − net contributions + payouts; shown for 2019 onwards, the period for which HANFA publishes payouts, and cumulatively since 2002 from the “since inception” columns of the same tables. Investment structure is HANFA table C-4, categories A, B and C summed. Values published in kuna are converted at the fixed conversion rate of 7.53450. ZSE turnover is from the exchange’s annual trading reports and turnover statistics; January–August 2026 from the exchange’s monthly trading report for August 2026 (year-to-date columns), so that both sides of the comparison cover the same period. The currency-matching requirement is Article 129 of the Mandatory Pension Funds Act. Transfers between funds when a member switches are excluded, as they net to zero for the system.