Press release regarding investments in 2018
The Kosovo Pension Savings Trust (KPST), as it has done every year and for the purpose of informing contributors and the public will issue this release in order to provide key information regarding results for 2018. While figures in this release are preliminary, the final figures will be presented in the 2018Annual Report.
KPST started 2018 with 1,634,648,056 euro assets under management and ended the year with 1,681,148,925 euro, or 46,500,869 euro more. During the year, KPST has also paid around EUR 31.2 million to retiring contributors.
Investment performance during 2018 was -5.2%, as compared with a return of +6.48% for 2017. Also, it must be clarified that until 2018, KPST had 9 successive years of positive return from investments with a gross accumulated return of EUR 464.8 million.
As it has repeatedly been mentioned, KPST is an institution that makes investments for the long term. When a two-year or longer investments periods are taken into consideration, the performance is always positive, as illustrated in Table 1. Based on this KPST for the last 10 years – including the 2018’s performance – had an average annualized return of + 4.89%.
Table 1: KPST return of investments during the last 10 years
| Period | Gross return from investment | Unit price change | Annualized performance |
| 2-year | +€17.47 millions | +0.87% | +0.43% |
| 3- year | +€82.41 millions | +5.35% | +1.75% |
| 5- year | +€178.71 millions | +14.51% | +2.75% |
| 10- year | +€380.09 millions | +61.24% | +4.89% |
For the purpose of demonstrating the value of current investment portfolio and also market volatility, the gross return from KPST investments during the first week of January 2019 has been positive in the amount of around of +20 million euro.
Determining factors for the 2018 performance
KPST’s 2018 performance reflects the fact that all major financial markets have ended the year in negative territory. By the end of the third quarter of 2018, the gross return of KPST investments was around +22 million euro, which is also the period when financial markets had a positive quota.
The fourth quarter of 2018 experienced a sharp decline in financial markets for several key reasons: 1) an aggressive trade war between two of the largest world economies, i.e. USA and China (unprecedented so far), accompanied by harsh and consistent statements made by the U.S. administration regarding trade issue, and because of the loss of Congress to the Democrats, which created further uncertainty in the markets; 2) tight monetary policy by the U.S Fed, and the warning of further increases in the interest rate for the upcoming year; 3) uncertainties about BREXIT and Italy’s fiscal budget; 4) the slowdown in global economic growth, particularly in the Asian economies; and 5) the expectation for a correction in global equities after the end of the 10-year cycle of the bull market.
The aforementioned factors increased the volatility in world’s major indexes and turned 2018 into a negative year, which also in turn reflected in KPST’s performance as well. However, as illustrated in the table below, due to the Investment Strategy and Decisions of the Governing Board (where most of investments during 2018 were in Kosovo government bonds), KPST’s performance was more amortized compared to that of key global indices.
Table 2: Performance Indicators of Major World Indices and KPST in 2018
| Stock exchange index | Performance for the 2018 | Prudent risk (Volatility) |
| S&P 500 – USA | -6.2% | 17.9% |
| DAX – Germany | -18.3% | 15.6% |
| CAC – France | -10.9% | 13.8% |
| FTSE – England | -12.4% | 14.5% |
| Nikkei –Japan | -15.6% | 19.0% |
| KPST | -5.2% | 5.0% |
KPST’s portfolio during 2018 was characterized with a significantly higher stability compared to main indexes. The volatility of KPST’s portfolio of 5.0% was around three times lower than the volatility of key stock market indexes.
Risk reduction and investments in Kosovo
By analyzing the rhetoric of the trade war between the US and China and being aware of its consequences, the KPST’s Governing Board starting at the end of 2017 and throughout 2018, decided not to invest new funds in the international financial markets, but rather orient them in Kosovo. At the end of 2018, for the first time ever, KPST had about 300 million euros invested in Kosovo (or around 20% of total assets). This was realized due to the increased demand for funds by the Government of Kosovo – whereby KPST has systematically participated in all auction. Also an increased interests by local banks to acquire funds from KPST played a big role. In general, lower risk assets (cash, deposits in local banks, Kosovo securities and money market) were about 514 million euro or 30.6% of total assets at the end of 2018, while a year earlier they stood at 195.3 million or 12% of assets.
Conclusion
The Governing Board estimates that KPST’s investment performance, taking into consideration the extremely challenging conditions in financial markets and having experienced the worst December since Great Depression, was inevitable in terms of annual performance. This being said, a quarter of the aforementioned drop has been recovered in the first week of 2019.
Furthermore, it must be emphasized that considering the average age of KPST contributors, which is 41 years old, assets are invested with the long-term perspective in mind. Notwithstanding the negative performance of a single year, the investment strategy in force will accomplish the desired outcomes for contributors in the long run – as was proven by the cumulative positive performance of KPST’s investments from inception until the end of 2018.