The year 2023 started with a continuation of the positive sentiment that had emerged late 2022 with clear signals that inflation had peaked in the US, and that tight monetary policies were effective to fight inflation. This created the expectation that interest rates would not need to further increase and that central bankers would be able to “pivot” their monetary policy (i.e. reduce interest rates) towards the end of 2023/early 2024. The surprisingly strong labour market and economic data released mid-2023, especially in the US, somewhat dampen this positive sentiment and financial markets retraced during Q3 some of their earlier gains. As inflation readings continued to reduce and recession fears dissipated, investors’ appetite for risk assets such as equities resumed in Q4 2023 and prompted a strong rally for equities, while also pushing bond yields lower. A real boon for financial markets. At the end of 2023, stock markets were priced on a basis of a “soft” landing scenario of the global economy in 2024, which given the abundance of risks, in particular geopolitical risks, might prove challenging.
Thanks to the positive performance in 2023, the average return since inception has increased to +4.07% per annum. In absolute terms, the total return on investment since inception amounts to €796 million. This is the gain the Fund would have realised at the end of 2023 if all assets had been sold at market values.
The global economy in 2023 has resisted better than many predicted at the beginning of the year. Despite higher borrowing costs and still hefty inflation rates, large companies were able to sustain healthy profit margins, especially in the US sector of information technology which benefited from the artificial intelligence craze. All asset categories of the pension fund performed positively, except for the European unlisted real estate.
The actuarial valuation (IAS 19) of the defined benefit obligation (DBO) of the total Pension Fund has increased in 2023 (+13%), resulting in a slight decrease of the overall funding ratio (53% compared to 55% in 2022). The main driver for the increase of the DBO value is the fall of the eurozone corporate yield (and hence lower discount rates) at end 2023 compared to 2022 (3.3% versus 3.75%, respectively).