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ESADE-Mercer study finds that employment pension funds remain the most profitable collective savings system

In the past 10 years, the average net profitability of investment funds and individual pensions have been very similar (2.2% vs. 2.5%), whereas employment pension funds have seen their profitability rise to 3.6%

Employment pension funds have significantly higher average net profitability than investment funds and individual pension funds. They are also less risky, making them clearly more efficient to manage. This is the main conclusion of the third edition of the study “Situation of Collective Savings in Spain: Historical Results of Investment Funds and Pensions”, by Mercer and ESADE Business School. The report, presented today on ESADE’s Barcelona campus, analyses the behaviour over the past decade of 1,359 collective savings vehicles with 10 or more years of history.

The conclusion of the study comes into even sharper focus when the savings vehicles are segmented by risk level, separating the outcomes for mixed funds and pure funds. In mixed funds, good strategic asset allocation is of fundamental importance.

ESADE Professor Carmen Ansótegui, a co-author of the study, commented: “The better relationship between profitability and risk in employment pension funds can be explained by the existence of the control commissions, which enable these funds to have better governance structures and more efficient investment strategies that make them more profitable in the long term.”

The ESADE-Mercer study also found evidence of a positive correlation between fund size and higher profitability. Across the board, 25% of the funds account for more than 80% of the assets held overall. The evidence linking size to profitability was found only for employment pension funds.

“The largest pension funds, each with its own level of risk, are getting better-than-average returns,” commented Xavier Bellavista, Director of Mercer Investments and a co-author of the study. “The importance of defining a good investment strategy – something we believe the larger employment pension funds are doing – is the key to achieving good future returns. Historically, Spanish funds have tended to invest more heavily in variable-income assets and European fixed-income assets, so their results in recent years have been influenced by the performance of these assets.”

The study also analysed some of the trends that can be observed in the asset-management industry. Despite the growing importance of passive management, the role of active management and specialised asset managers remains fundamental and will perhaps become even more important in the future. Boutique and international management firms will continue to grow in importance in the Spanish market, since they offer interesting solutions to savers. However, their success could be partially explained by their ability to complement the offerings of the major Spanish groups.

In light of the trends for savings levels in Spanish households – currently at a 10-year low – the study highlighted the urgent need for greater financial education. “Financial education generates profitability,” commented Jordi Fabregat, Associate Professor at ESADE and a co-author of the study. The study concluded that with good investment strategies and a sufficient level of savings, it is possible to build up sufficient savings for the medium and long term.