Figures from the Austrian financial regulator indicate that the country's pension funds embraced alternative asset classes whilst suffering negative investment performance in the second quarter of 2011 

In the second period of what has been a miserable year so far for pension funds across Europe, the 17 pension funds in the €14.8 billion Austrian market saw their funds shrink by 0.5%.

A report from the financial regulator announcing the results noted: "Events on international financial markets have a clear influence on Austrian pension funds. 2011 has in general been shaped by great nervousness in the markets, with a series of volatile movements, and this has continued and worsened the negative trend of the first quarter."

Austrian pension funds upped their holdings in both sovereign bonds and equities throughout the second quarter of the year.

Sovereign bonds remain the biggest asset class in the system, comprising 33.6% of total assets. Equities now account for 30.4% of Austrian pension funds' asset sheets.

Increasing interest in alternatives has been seen in a 11% overall rise in the amount invested in real estate, and a 7% rise in holdings of other investments.

Alternatives have been advocated across Europe as a possibility for pension funds seeking returns in uncertain times for mainstream markets.

Austria is widely seen as needing to expand its small private pension system as it faces a demographic challenge with a society that has become familiar with a generous state pension.

Last week the IMF warned Austria that its practice of granting early retirement to people who had paid social insurance for 35 years is not sustainable. The fund said that "pensions and other benefits fostering widespread, early, labour market exits are no longer affordable, and ongoing reforms should be strengthened."

First published 15.09.2011

dbillingham@wilmington.co.uk