At the end of February 2023, the NAV of the Croatian pension funds equaled EUR 18.1bn, representing an increase of 4.4% YoY, and 0.7% MoM.
The Croatian Financial Services Supervisory Agency, HANFA has recently published the latest report on the Croatian capital markets. According to the report, the NAV of Croatian pension funds amounted to EUR 18.06bn, representing a slight increase of 0.7% MoM, but a noteworthy one of 4.4% YoY. Given the importance of the Croatian pension funds, and the amount of assets (especially stocks) they hold, it is worthwhile seeing how they perform. Furthermore, the net contributions into the pension funds amounted to EUR 95.6m in February 2023, while on a YTD basis, they amounted to EUR 185.7m.
Croatian mandatory pension funds AUM structure change (January 2018 – February 2023, EURm)
Source: HANFA, InterCapital Research
Taking a look at the changes recorded by asset holdings, on a monthly basis, we can see growth across all but 1 of the asset classes. In absolute terms, the largest growth was recorded by investment funds, which increased by EUR 113m, or 5.8% MoM, followed by shares, which increased by EUR 87.7m, or 2.3%, and bonds, which grew by EUR 76.5m, or 0.7% MoM. On the other hand, deposits and cash holdings decreased by EUR 216.5m, or 25% MoM.
These changes are quite interesting, as the fund managers in the pension funds are responsible for looking after long-term pensionary investments, to keep and increase the value of the said pension. Here then, we can see that they’re decided to switch the investments from lower-yielding (deposits and cash) to higher-yielding assets, such as investment funds, shares, and bonds. The reason why this is interesting is the fact that pension funds are by their nature quite risk averse, but have still decided to switch to higher yielding, higher risk assets. This could be due to the fact that the returns of Croatian shares, has been quite strong in 2023, despite the situation. Furthermore, having low-yielding deposits & cash positions, in times of high inflation not only leads to negative returns but also higher opportunity costs.
Moving on to the yearly basis, the story is even brighter. All the asset holdings recorded at least some growth, with the largest increases recorded by shares (EUR +338.4m, +9.6% YoY), bonds (EUR +158.2m, +1.4% YoY), money market holdings (EUR +111.9m, +127.6% YoY), and finally, deposits and cash (+EUR 109.9m, +20.7% YoY).
Finally, looking at the current asset structure of the pension funds, bond holdings still maintain the largest proportion, at 62.5%, remaining roughly the same MoM, but recording a decrease of 1.82 p.p. YoY. Next up, we have shares, which hold 21.4% of the total, an increase of 0.35 p.p. MoM, and 1.02 p.p. YoY. Finally, we have investment fund holdings, which account for 11.4% of the total, an increase of 0.56 p.p. MoM, but a decline of 0.48 p.p. YoY.
Current AUM of Croatian mandatory pension funds (February 2023, % of the total)
Source: HANFA, InterCapital Research
One last tidbit that will be interesting to see next month is the Croatian retail bond impact. Out of the total of EUR 1.8bn that was issued by the Croatian govt., app. EUR 500m went to institutional investors, including pension funds. As such, just on this basis, we should see an increase in bond holdings in March 2023 report.
