By the end of June 2022, the NAV of Croatian Mandatory Pension Funds amounted to HRK 129.1bn, a decrease of 1.4% MoM and an increase of 2.1% YoY.
The Croatian Financial Services Supervisory Agency (HANFA) has published its monthly report on the changes in the Croatian mandatory pension funds. Given the fact that the funds hold a significant amount of investments in the Croatian capital market, analyzing their performance and assets over time can help us understand the developments in the Croatian financial market.
The NAV of pension funds decreased to HRK 129.1bn (EUR 17.2bn) in June 2022, which is -1.4% lower on an MoM basis but 2.1% greater on a YoY basis. Net contributions into the pension funds amounted to HRK 699.4m, or HRK 3.96bn since the beginning of 2022.
Mandatory pension funds AUM structure change (HRK bn, January 2018 – June 2022)
On an MoM basis, the largest change was recorded in the receivables category with an increase of 38.3%. The class to decrease the most in relative terms is investment funds with -6.1% (or HRK -895.9m in absolute terms). Following them, we have deposits and cash which declined by -4.2% (or HRK -226.3m), and shares which declined by 3.4% (or HRK -917.2m). The remaining asset classes remained roughly flattish MoM.
The situation is quite different on a YoY basis. Receivables lost -79.6% (or HRK -2.57bn) in value, followed by money market holdings which lost -75% (or HRK -989.9m). The third largest decrease was in deposits and cash with 12.5% (or HRK -742.5m). The greatest increases occurred in bonds and shares, with 4.4% (HRK 3.5bn) and 3.3% (HRK 837m) increases, respectively.
If we were to look at the asset structure of pension funds, not much has changed, especially on an MoM basis. Bonds continue to top the list with a share of 64.7% of the total assets (or HRK 83.5bn). This is an increase both on an MoM basis (0.9 p.p.) and on a YoY basis (2.9 p.p.). Next on the list are share holdings standing at 20.3% of the total, a slight decrease of -0.4 p.p. MoM but a slight increase of 0.7 p.p. YoY. The third largest asset holding, investment funds, amount to HRK 13.7bn (or 10.6% of the total) representing a decrease of -0.5 p.p. MoM and an increase of just 0.1 p.p. YoY.
Current mandatory pension funds AUM (June 2022, %)
Finally, dividing the mandatory pension funds’ holdings into domestic and foreign holdings, not much has changed since May. Domestic bond holdings still make up the vast majority of the total bond holdings with 93.5% (a -0.5 p.p. decrease MoM), while foreign bond holdings make up the other 6.5% (a 0.5 p.p. increase MoM). At the same time, domestic equity holdings account for 61.2% of the total (a 0.6 p.p. increase MoM) and foreign equity holdings account for 38.8% of the total (a -0.6 p.p. decrease MoM).
The entire situation when it comes to investing from the perspective of the pension funds is a story of a trend that we have been seeing for the last couple of months. With the current war in Ukraine exacerbating the already strong inflationary pressures we have recorded since the end of 2021, there is a general expectation that ECB will start raising interest rates (something that only yesterday, ECB announced will amount to 50 bps). With the increase in the interest rates, the current trend of the decline in investments into riskier types of assets like shares and investment funds should continue, but finding a real “safe haven” for any investment at this moment, is quite hard for everyone, especially pension funds which have longer investment horizons and are quite risk averse. An increase in more liquid and safer types of assets is to be expected (deposits and cash, for example), but overall, the negative trend is here to stay if we do not see some positive changes in the macroeconomic/geopolitical situation.