At the end of November 2022, the total NAV of Croatian pension funds amounted to HRK 132.9bn, which is an increase of 1.7% MoM, and 1.5% YoY.
The Croatian Financial Services Supervisory Agency, HANFA, has recently published the latest report on the Croatian capital market, including data on the Croatian mandatory pension funds. According to the report, in November 2022, the NAV of Croatian pension funds amounted to HRK 132.9bn, which is an increase of 1.7% MoM, and 1.5% YoY. At the same time, the net contributions into the pension funds amounted to HRK 705.4m in November, while on a YTD basis, they amounted to HRK 7.51bn.
Mandatory pension funds AUM structure change (January 2018 – November 2022, HRKbn)
Source: HANFA, InterCapital Research
Looking at the changes recorded by the asset holdings, on a monthly basis, the largest growth was recorded by bonds, which increased by HRK 1.49bn, or 1.8%. Following them, we have shares, which grew by HRK 1.01bn, or 4%, and other assets, with a growth of HRK 550.7m, or 162%. On the other hand, deposits and cash were the only categories to record a decline, decreasing by HRK 595.7m, or 7.9%. Considering the fact that, unlike the mutual funds, the net contributions into the pension funds are always positive, the increase in the value of bond and share holdings means that the assets recovered some of their value in November, but also that they diverted investments from other assets (such as deposits and cash), and that they invested the new contributions into bonds and shareholdings, primarily.
Moving on to the changes recorded on a yearly basis, the largest increase recorded is in the deposits and cash category, which increased by HRK 1.83bn, or 36%. Following them, we have bond holdings, which increased by HRK 1.58bn, or 1.9%. On the other hand, the largest decrease was recorded by the receivables category, which decreased by HRK 483.2m, or 3.2%, followed by the money market holdings at HRK 252.6m, or a decrease of 18%.
Again, given that the main job of the pension funds is to store and with as little risk as possible increase the value of well, pensions, the increase in deposits and cash, as well as bond holdings, is expected, as these asset types hold almost no risk in them. As the inflation in 2022 is the largest in Croatia’s history, however, even the reduction in risk that is gained by investing in bonds is hard to justify on one hand but makes sense on the other. The real short-term loss of value is of course the hard justification for investments in these asset types, but at the same time, due to the time horizon of the investments for the pension funds, 1-2 years of losses are more than made up with subsequent years of higher returns.
Moving on to the current asset structure of the pension funds, bond holdings still maintain the largest part, at 63.3%, representing an increase of 0.1 p.p. MoM, and 0.5 p.p. YoY. Shareholdings follow, at 20.1% of the total, an increase of 0.45 p.p. MoM, but a decrease of 0.2 p.p. YoY. Next up, we have investment funds, at 10.9%, representing an increase of 0.01 p.p. MoM, but a decrease of 0.5 p.p. YoY. Finally, we have deposits and cash, which account for 5.2% of the total, representing a decrease of 0.54 p.p. MoM, but an increase of 1.3 p.p. YoY.
Current mandatory pension funds AUM (November 2022, %)
Source: HANFA, InterCapital Research
Finally, looking at the securities and deposits, the domestic bond holdings accounted for 92.6%, an increase of 1.27 p.p. MoM, while the foreign bond holdings accounted for the remaining 7.4%. At the same time, domestic equity holdings accounted for 59.4% of the total equity holdings, representing a decrease of 0.66 p.p. MoM, while foreign equity holdings accounted for the remaining 40.6% of equity holdings.