20.01.2023

Investment performance of 2022

From February 2022, the Kosovo Pension Savings Fund manages the pension funds according to the age of the contributors through two investment portfolios:
1) Standard Portfolio (for age up to 63 years) and 2) Conservative Portfolio (for age over 63). While the Standard Portfolio is the continuation of KPSTs investment strategy, the Conservative Portfolio has the main purpose of isolating pension contributions from more sensitive fluctuations in global financial markets. Therefore, investments in the Conservative Portfolio are allocated mainly in Kosovo (in Government securities) with a predetermined interest rate. Due to the completely different aspects, the reporting on the investment performance of both portfolios will be published separately.


STANDARD PORTFOLIO

Investment performance for the Standard Portfolio for 2022 was -5.5% (2021: +10.7%). In nominal value, the return from investments for 2022 was around -120 million euros (2021: +227 million euros). However, the gross return from since inception of KPST until the end of 2022 is about +660 million euros and the unit price has risen by about 63%.

Table 1: Gross return from investments in the last three years

Year Nominal return

(In euros)

Unit price in the end of year Net change
of unit price
2020 +72 million €1.5564 +3.03%
2021 +227 million €1.7222 +10.65%
2022 -120 million €1.6268 -5.54%
Since inception +660 million +63%

 

The negative performance for 2022 was a result of series of negative factors weighing heavily on the global investment environment. The consequences of the Covid-19 pandemic (with high inflation, supply chain delays, declining purchasing power and budget difficulties around the globe) were added (and further exacerbated) by the war in Ukraine, which drove up the prices of electricity, oil, food products and created an alarming situation for the future of the global economy and investment performance. All these negative events had serious consequences (comparable to 2008) in the devaluation of the indices in the world’s main stock exchanges.

Since the beginning of 2022, the Governing Board has taken a record number of decisions on the reallocation of pension funds invested in the financial markets, bringing the investment risk of KPST to one of  the lowest historical level. Due to  these decisions the volatility and investment performance of KPST is comparably better than the main market indices. A table with comparisons of the performance of KPST and the main global indices is presented below.

Table 2: The performance of FKPK against the main world indices for 2022

KPST / Indices Performance
KSPT – Standard Portfolio -5.5%
S&P500 -19.4%
MSCI world index -18.3%
Dow Jones -8.8%
Nasdaq -33.1%
Stoxx 600 -12.8%
FTSE 100 -19.7%
DAX 30 -12.4%


CONSERVATIV PORTFOLIO

In the Conservative Portfolio, as was expected, we had an increase of +3.0% of the unit price for 2022. Because the investments of this portfolio are only in the bonds of the Government of Kosovo and bank deposits in Kosovo, they are not affected by fluctuations and downturns in financial markets. Therefore, the decision of the Governing Board in February 2022 to launch this portfolio, has been confirmed as appropriate; thus providing effective protection for contributors close to retirement.


ASSETS UNDER MANAGEMENT

The value of assets under the management on December 31, 2022 reached 2,412,052,183 euros. Compared to the end of the previous year (2021: 2,353,174,912 euros), we have an increase of assets for about 59 million euros. This increase was due to new contributions for 2022, which reached a record figure of around 241 million euros (2021: 213 million euros).

Table 3: Assets under management in the last three years

End of the year AUM
2020 €1,988,073,032
2021 €2,353,174,912
2022 €2,412,052,183

It is understood that due to premature withdrawals, allowed by the Assembly of Kosovo (as part of the legal changes for recovery from the Covid-19 pandemic), in 2020 and 2021, about 198 million euros were withdrawn, affecting the reduction of assets under management.


OPERATIONS –
IPSA PROJECT

In the field of operations, the most important project for 2022 was the deployment of new software (prepared by KPST staff) for the management of contributor accounts (otherwise known as IPSA). This software replaced, according to the plan, the previous software outsourced by an external operator. With this change, the institution benefited from additional value from full ownership of this software, lower cost for operation and maintenance, but also numerous advantages in use, especially with the possibility of creating more than one investment portfolio.


EXPECTATIONS FOR 2023

There is a high degree of consensus that in 2023 the global economy will experience a recession, as tight monetary policy will create high pressure and (thereby) slow down global economic activity. On the other hand, difficulties in the global supply chain have been eased, and the re-opening of China’s economy will affect the improvement of global economic activity. However, this consensus is relative if unpredictable events do not occur, that can completely change this perspective.

Under these forecasts, KPST will continue to follow a careful investment strategy, always keeping in mind the principles defined in the Law on Pension Funds, but also the long-term goal of the institution to exceed the rate of inflation in Kosovo.

The KPST, during 2023, is expected to have the appointment of all members of the Governing Board (since the mandate of the current members of the Governing Board expires on February 28, 2023), and this will be a very important moment for short-term actions and medium-term planning of the institution in all fields of action.

 

Table 4: Summary of key indicators for year-end 2022 and 2021

INDICATORS As of 31 December 2021 As of 31 December 2022*
Gross return on investment

€227 million

€-120 million

Net AUM

€2,353,174,911

€2,412,052,183

Unit price in the end of year

€1.7222

€1.6268

New contribution for the year

€212 million

€241 million

Benefit payments for the year

€68 million

€55 million

Retired contributors

7,239

7,131

All accounts since inception

752,523

792,995

Active accounts for the year

419,657

428,891

Investments in the financial markets

€1,808,309,791

€1,689,250,011

Kosovo TB

€490 million

€554 million

Terms deposits in Kosovo

€45 million

€137 million

Management fee
investments / operations

0.32% / 0.065%

0.32% / 0.057%

*The final figures are published in the audited annual statements.