Pension funds’ portfolios stay stable in Q1 despite volatility

Over the period January — March, adverse market factors affected NPFs’ investment portfolios to a considerably lesser extent than financial markets in general: pension savings shrank by 1.3% over the quarter, to total 2.822 trillion rubles, and pension reserves — by 2.0%, to 1.386 trillion rubles. Against the overall market situation, NPFs’ investment portfolios decreased only slightly because they are dominated by debt instruments (corporate and federal government bonds), 27.8% of which do not depend on market volatility since they are valued at amortised cost.

The most significant changes in the structure of pension savings were a reduction in value of shares, specifically by 14.4% to 151.8 billion rubles, and an increase in amounts of reverse repo transactions (sale of securities with the obligation to buy them back) — by 21.7% to 165.8 billion rubles. Value of shares declined primarily due to downward market trends. However, there were also selective sales of shares: due to high volatility, pension funds reinvested a portion of savings in lower-risk instruments, namely debt securities, including under repos. The structure of pension savings investments is still dominated by corporate bonds (52%, or 1.468 trillion rubles) and government securities (29.9%, or 844 billion rubles).

Over the quarter, the value of federal government bonds in pension reserve portfolios decreased most notably — by 13.7% to 156.9 billion rubles, primarily due to the repayment of the issue present in portfolios of the majority of pension funds. Value of shares in pension reserve portfolios declined to a lesser extent than in pension savings portfolios — by 3.6% to 153.8 billion rubles: amid the market slump, in Q1 pension funds built up their positions in shares in their pension reserve portfolios. Moreover, in the environment of high volatility, NPFs increased their pension reserve investments in corporate bonds: their value was up by 2.4% to 644 billion rubles, and they still prevail in investments and pension reserves (46.5% of the portfolio).

Pension funds continue to invest in the real economy. Pension savings investments in the real economy totalled 1.050 trillion rubles, which still makes the largest portion (37.2%) of the portfolio, although the cost of these investments declined by 3.5% for the first time over the three months of the year. Pension reserve investments in the real sector continued to expand, increasing by 2.3% to 485 billion rubles.

Despite the pandemic, NPFs continue to properly pay pensions. Moreover, the majority of NPFs receive customers’ pension requests remotely. Earlier, the Bank of Russia implemented a range of regulatory relaxations for NPFs. However, over the period March — April, NPFs did not make advantage of the most significant relaxation — the possibility for accounting debt securities at their value as of 1 March 2020. Depending on the market situation, a number of pension funds leave open this possibility in the future — until 30 September 2020. That said, 10 of 44 pension funds made use of the option to extend stress testing periods from 10 to 20 days, and a range of NPFs embraced the opportunity to submit their reporting to the Bank of Russia later (deadlines for a number of reporting forms were extended until 30 June).