Where Your Pensions Are Invested: A Look into Portfolios

The news published in mid-February that one Croatian pension fund achieved better results than the enormous Norwegian sovereign wealth fund went relatively unnoticed in the domestic public. The famous Oil Fund, as it is colloquially known, increased its value by approximately 135 billion euros last year, bringing its assets to an incredible 2.2 trillion euros. This fund, which receives excess revenue from oil exports, provided Norwegian citizens with a return of 15 percent.

Croatian pension funds, although managing 26.5 billion euros, making them the largest institutional investors in Southeast Europe, are true dwarfs compared to the Norwegian fund in terms of assets. However, when looking solely at returns, David has defeated Goliath: the A-category fund of PBZ Croatia osiguranja achieved over 18 percent in 2025. The others in that category, AZ and Erste Plavi, did not lag far behind, achieving double-digit results. The only exception is the notoriously cautious Raiffeisen, which recorded a return of 8.6 percent, which is still an excellent result historically.

Significant Differences

Such results are even more important if we know that the stock market in 2025 was exceptionally volatile due to the shock caused by Trump’s tariffs. Nevertheless, positive results were also present in other categories. The most numerous category, B, recorded an average return of 8.8 percent expressed by the Mirex index, while the most conservative, category C, achieved just over two percent. Last year was already the third in a row in which pension funds achieved a growth in returns, following the pandemic year of 2020, which brought a decline of between four and five percent. A look at the longer period, since the inception of pension funds, also shows that 2.4 million members are in the positive. In category A, the average annual return is 8.4 percent, category B records 5.5 percent, and category C 3.2 percent.

Danijel Nestić, head of the Labor Market and Social Policy Department at the Economic Institute, Zagreb, evaluates such results as satisfactory, while still warning of significant differences in returns among funds in categories A, B, and C.

– That difference is expected. It is related to different investment portfolios that are the result of legally set roles of individual categories of funds and their investment limits. Category A funds invest in somewhat riskier types of assets, which is why their gains are higher, but the potential risks of asset loss in bad times are also greater. Therefore, they are intended for younger insured individuals who still have enough time to recover their returns in better periods in case of asset loss. Category B funds are balanced funds with medium risk portfolios. They have the most insured individuals and are in some way the most representative for assessing the returns of pension funds. And that return is in line with the returns of similar pension funds elsewhere in the world, perhaps even somewhat better – says Nestić.

Returns of large European funds for 2025 range between seven and eight percent. Alongside the aforementioned 15 percent return of the Oil Fund, another Norwegian pension fund, KLP, achieved 7.9 percent. We should also mention the Finnish Elo with a return of 7.4 percent. Since the establishment of domestic funds A and B, they have had returns above inflation, average wage growth rates, and pension adjustment rates from the first pillar.

– That is why our funds are successful. Category C funds are currently designed very conservatively, with very rigid investment rules – they are not allowed to invest in stocks at all. Therefore, it is not surprising that their return is objectively very modest, and when looking at the last few years, it has been below the inflation rate. Thus, one could say that this category of funds has achieved poor results. However, in such an assessment, it is important to highlight two things: first, these funds have extremely conservative legal investment restrictions that prevented them from achieving better results; second, category C is not intended for long-term savings, and therefore their return should not be the focus. Their purpose is to transfer funds to these funds before planned retirement, which, admittedly, have low returns, but generally manage to avoid negative results even in cases of significant market disruptions – explains Nestić.

What Is in the Portfolio

What do Croatian pension funds invest in to achieve such results? It is a mix of government and corporate bonds, Croatian and foreign stocks, as well as shares in open and alternative investment funds and ETFs in Croatia and abroad. Regarding bonds, pension funds have often been criticized for buying too many government bonds. This asset class today accounts for just over 38 percent, as shown in the report by the Croatian Financial Services Supervisory Agency (Hanfa) for December, but bond investments have been slightly but steadily declining for years. For example, ten years ago, pension funds had a much larger 73 percent of their assets in Croatian government bonds, but the share of investments in foreign bonds has noticeably increased. This is one of the characteristics of integration into the European Union, especially the eurozone, which some financial analysts warned about over fifteen years ago. Namely, the prediction that interest from pension funds in domestic bonds would wane with Croatia’s entry into euro integration has come true. Now, pension funds have 16.5 percent of their assets in foreign bonds. If we add up domestic and foreign bond portfolios, they hold 14.5 billion euros in government debt, or 55 percent of their assets, which is still significantly lower than previous levels.

In the last year, the share of French bonds in portfolios has significantly increased as part of the withdrawal from the American capital market, which Lider has already reported on. AZ holds these bonds along with American ones and one Slovakian bond, while PBZ/CO and Erste Plavi have the most colorful portfolios. Alongside German and Italian bonds, PBZ/CO has turned to the debt of Central and Eastern Europe: Hungary, Poland, Romania, Bulgaria, and Lithuania. In addition to Bulgarian, Lithuanian, and Polish bonds, Erste Plavi has invested in bonds from Austria, Slovakia, the Czech Republic, Slovenia, Spain, Germany, and France, as well as those issued by the EU; outside the European continent, it holds American bonds.

Every second euro of pension savings invested in bonds is not so much a decision of fund managers as a result of regulatory dictates. Namely, legal provisions prescribe the minimum share of bonds that pension funds must have in their portfolios. For category A, this is 25 percent, in category B half of the assets must be in bonds, and in the most conservative, category C, at least 60 percent. When asked whether the legislator should consider completely abolishing the minimum investment threshold for bonds, Hanfa responded that, observing past changes in the legislative framework, it is evident that investment restrictions have been gradually relaxed and liberalized.

– This shows that the legislator is monitoring market changes, the needs of pension funds and their members, and adapting the regulatory framework in accordance with market developments. Care must be taken to ensure the safety of investments and the protection of fund members. There is no reason to doubt that the legislator will continue to act in the same way, carefully balancing between greater investment flexibility and maintaining system stability – they say at the regulator.

Category C Seeks Changes

Nestić believes that there is no particular need for changes in the liberalization of investments in funds of categories A and B, but when it comes to those in category C, it would be desirable to allow them to invest in stocks to some extent and thus mitigate their conservativeness. This opens up a broader question of the investment strategy of funds depending on the age of members, or their life cycle, especially close to expected retirement.

– The transition between funds of categories A, B, and C is abrupt, and it may be worth considering a different legal arrangement in this area, models in which the portfolio would be adjusted almost continuously to the age of members – evaluates Nestić.

Freed from such regulatory constraints, the aforementioned Norwegian sovereign fund has a completely different asset structure. At the end of last year, it held 71 percent of its assets in stocks, bonds accounted for 26.5 percent, and in real estate and renewable energy infrastructure, it holds the remaining 1.7 percent or 0.4 percent of assets. Regarding stocks, it is interesting to note that it has shares in 7,201 companies and holds 1.5 percent of the volume of all listed stocks in the world. The Norwegians have invested the largest amount in America, even one trillion euros. Among individual investments, the Oil Fund has the highest value in the stocks of Nvidia, Apple, and Microsoft.

Croatian pension funds have a much more cautious investment philosophy. For years, it has been said that they are the largest investors in the domestic market, and the latest statistics suggest that the share of their assets invested in domestic stocks has approached levels before the great crisis of 2008. Hanfa’s data shows that at the end of last year, they had 3.7 billion euros in domestic stocks. Of that, the majority, three and a half billion euros, is concentrated in category B funds. In terms of share, domestic stocks account for 14 percent of assets. For comparison, at the former peak of the market, at the end of 2007, pension funds had slightly higher than 14.7 percent of their assets in domestic stocks. After the outbreak of the 2008 crisis, the share fell to 11 percent, but soon began to rise again, reaching its highest share of 15.5 percent in 2010.

The largest fund in the country, AZ, has the largest amount in domestic stocks, 1.44 billion euros. Reports on the structure of investments show that AZ in category A, which is more exposed to stocks, has invested in 24 companies from domestic issues, which is only a third of all stocks listed on the domestic market. In category B, AZ has 27 stocks. The second largest, Raiffeisen, has even fewer Croatian stocks worth a total of 707 million euros: in category A only 14 companies, and in category B only 12. PBZ/CO has invested in 22 domestic companies in category B and in 19 in category A. The smallest company by assets, Erste Plavi, holds 21 stocks from 20 companies in category B (it has Adris’ preferred and regular stock) and stocks from 19 companies in category A.

The answer to the question of why part of the local market is not represented in pension funds is actually simple, say the Association of Pension Fund Management Companies (UMFO).

– Pension funds in the investment process choose investments that meet a set of criteria. When all these criteria are applied to the domestic market, it turns out that currently only about twenty domestic companies meet them. Pension funds have played an important role in the development of the domestic capital market for years, but their mandate is not to track a specific stock market index, maintain a certain share in the market capitalization of domestic companies, and so on, but to protect and increase the assets of members in the long term. In that sense, funds will continue to invest in domestic stocks, but also in other markets, when they assess that there is a favorable risk-return ratio alongside all other criteria being met – they explain in that association.

Dominance of Končar

When it comes to the largest investments in domestic stocks, Končar and companies from its group dominate. This group of stocks ranks first in share in five out of six funds. The stocks of the domestic industrial flagship are not at the top of the domestic portfolio only in Raiffeisen’s category B, which is most heavily loaded with Hrvatski Telekom stocks at 4.8 percent share. When it comes to Končar, one cannot overlook PBZ Croatia osiguranje, which has long had regulatory headaches because of this. Namely, the rapid rise in the price of Končar’s stock by 615 percent since the end of 2022 resulted in breaching the legal limit of a maximum of five percent share in a single stock. Therefore, this fund, later joined by Erste Plavi, was forced to sell those stocks to bring it down to the allowed level. Currently, Končar is slightly below five percent in both funds.

The portfolio of foreign stocks, in which all pension funds have invested 2.75 billion euros, is even more diverse (and interesting). While there has been a rush for a group of technology stocks known as the ‘magnificent seven’ worldwide for several years, our pension funds are evidently more cautious regarding these issues as they are increasingly mentioned in the context of a stock market bubble that will soon burst. Thus, AZ in category A owns stocks of Apple, Amazon, Alphabet (Google’s parent company), and Microsoft. It does not have the two ‘hottest’ tech stocks, Nvidia and Tesla. Moreover, no Croatian pension fund holds shares of Elon Musk’s company. AZ’s portfolio does not include Meta, the giant behind Facebook, Instagram, and WhatsApp. For Nvidia and Meta, alongside Alphabet and Apple, the funds PBZ/CO have decided, but their investments are at the bottom of the exposure scale, with the highest 0.9 percent share in Google’s parent company. Amazon, Alphabet, Microsoft, and Nvidia are also in Erste Plavi’s portfolio.

Although it does not have Nvidia, AZ has engaged in earning from artificial intelligence in another way – its funds hold a total of nearly 20 million euros worth of shares in the Dutch ASML. Twice as much, 41 million euros, is the value of the share held by Erste Plavi in that company, the only pension fund alongside AZ that has invested in ASML. This company is important on a global scale as it is a key world supplier of machines for producing chips used for artificial intelligence. In other words, there would be no Nvidia chips without ASML’s machines. In the last year, the price of that stock has risen by 60 percent. Raiffeisen is the least interested in tech stocks; it only holds Alphabet and Amazon.

In Ecstasy Over Gold

The American stock market has long been considered extremely expensive, with high valuations of stocks, especially those from the technology sector. The latest reason for concern among investors arose after the announcement that Meta, Amazon, Alphabet, Microsoft, and Oracle would invest an additional 660 billion dollars this year in infrastructure for artificial intelligence. OTP Invest board member Luka Pavlović points out that the American stock market has long been among the most expensive in a global context, however, one cannot simply compare the valuation of the index ten years ago and today.

– Today, mega-tech stocks dominate the index, which also brings higher valuations, and their larger share in the index automatically raises the valuation of the index. Higher valuations in the American market are primarily the result of strong profit growth and a very frequent case of exceeding expected results, but also very optimistic expectations related to the development and application of artificial intelligence. The market has largely already built into prices the future growth of revenue and profitability associated with artificial intelligence, which means that current valuations rest on the assumption of rapid and strong effects of these investments on the business results of companies. Nevertheless, despite higher valuation indicators, they are still not at the levels recorded during the dot-com bubble of the early 2000s – evaluates Pavlović.

Since they are not particularly interested in the technological trend, the other one – the global rush for gold – is evidently more interesting to them. Among AZ’s largest individual investments are stocks of companies engaged in the extraction of precious metals. Thus, shares of Newmont Goldcorp account for the largest 2.12 percent share in the foreign portfolio of category A, with a value of 6.2 million euros. If we add the share in category B, the total value rises to over 138 million euros. Newmont is an American company that is the world’s largest gold producer, with mines in nine countries. In addition to gold, it is involved in the extraction of silver, copper, zinc, and lead.

In the ‘golden’ part of AZ’s portfolio are also shares of Barrick, a company with estimated gold reserves in 17 countries of 89 million ounces. The total value of those shares is 113 million euros. Raiffeisen and PBZ/CO did not opt for those stocks, but instead joined the gold rush through the exchange-traded fund (ETF) VanEck Gold Miners.

However, in the foreign portfolio, pension funds primarily rely on Slovenian stocks, which have been extremely interesting to them for years, so it is not unusual that they are at the top of their exposure to foreign issues. Stocks of Krka and Nova Ljubljanska banka (NLB) dominate. The Slovenian pharmaceutical company has the largest share in category B in AZ and PBZ/CO. The largest Slovenian bank is the most represented in category A in Raiffeisen, PBZ/CO, and Erste Plavi, where those stocks are also leading in category B.

In the riskier part of the assets, alongside stocks, shares in investment funds and ETFs should be included. In domestic investment funds, pension funds have just under 130 million euros, while in foreign ones, much larger amounts of 2.7 billion euros. There are funds from the largest global investment firms and banks such as BlackRock, Vanguard, State Street, Amundi, JPMorgan, and HSBC.

In the coming years, a gradual stronger shift of pension funds towards riskier asset classes can be expected, but primarily in the categories where regulation allows it, especially those in categories A and B, say UMFO.

– Trends from 2025 and the beginning of this year show that funds are increasingly actively increasing their exposure to stocks, foreign markets, and alternative investments because that very asset currently brings the most competitive returns. At the same time, regulatory changes have allowed for greater flexibility and reduced the need for a high share of bonds, which further opens up space for diversification. However, the transition to riskier assets will be gradual and balanced as funds must maintain long-term portfolio stability and adhere to strict risk limits. In other words, riskier assets will gain more space, but not at the expense of safety – they convey from UMFO.

The Increasing Role of Geopolitics

The investment conservatism of our pension funds has also been noted by the Organization for Economic Cooperation and Development (OECD). In the recently published ‘Second Economic Review’ as part of Croatia’s accession to this organization, it is stated that category A funds can invest up to 70 percent of their assets in domestic and foreign stocks, but they have only invested 34 percent. Indeed, a more cautious approach than what regulation allows is also seen in pension funds in other OECD member countries. For example, Dutch pension funds, among the strongest in the world, also have just over a third of their assets in stocks, like the ABP fund. Investing in riskier asset classes in today’s circumstances is not simple. Namely, in recent years, geopolitics has gained significant importance in investment decision-making, says Pavlović.

– Companies succeed and fail even when the geopolitical situation is calmer, when there are no changes, so the focus on financial indicators and fundamentals remains the foundation of every investment. Of course, today the projection of fundamentals and the position of companies, states, and related financial instruments are greatly influenced by geopolitics, so the investment perspective should be viewed either as a combination of geopolitics and fundamentals or geopolitics should be included as one of the important factors in considering the movement of a particular issuer and predicting that movement. Exceptions may be commodities and precious metals. When it comes to them, geopolitical risks significantly influence the formation of demand – claims Pavlović.

The question of the investment strategy of pension funds is certainly a topic for yet another reform of the pension system, which constantly seeks new fine-tuning.