It has been a very difficult quarter for financial markets so far and the focus is very much the problems with southern European fiscal imbalances and lack of growth and the effect on the banking sector, but how is it to be a pension fund?
Unless a pension fund had a very positive funded status (very unlikely) at the end of Q1 they will all by now be deeply under water as is illustrated with two simple examples assuming a marked -to-market of both assets and liabilities. It is assumed that the pension fund is invested in domestic assets and that the liabilities NPV is measured by using a 30 yr EURO swap rate.
This Spanish pension fund began with a 10% positive funded status at the beginning of Q2, now it is negative by 16%
For the Italian pension fund the same 10% positive funding is now negative 8% as can be seen below:
The asset side assumption of 100% domestic investment is probably worst case, but on the other hand some funds could have larger equity allocations etc.
On the liability side using a blended curve from domestic government bonds and Euro swaps would also give a better outcome.
Whatever the assumptions it should be pretty clear that the situation for southern European pension funds is as bleak as for the banks and will play into and complicate the Euro-zone endgame coming up
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Italian stock markets mostly posted muted gains Tuesday as high oil prices and Europe's lingering debt problems kept investor enthusiasm in check
Asian stock markets mostly posted muted gains Tuesday as high oil prices and Europe's lingering debt problems kept investor enthusiasm in check.sell structured settlement
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