Iceland’s Brú Pension Fund achieved a real return of 2.4 per cent in 2023, its annual report has revealed, up from a return of -12.9 per cent in 2022.

The pension fund’s nominal return was 10.6 per cent, but high inflation of just over 8 per cent resulted in a lower real return.

To counter rising inflation, the Central Bank of Iceland raised its base interest rate by 3.25 percentage points during the year to 9.25 per cent.

This had a “major impact” on domestic equity and bond markets, Brú’s report noted, while investments in foreign markets were more positive.

Its total investment income in 2023 was ISK 37.5bn, up from a loss of ISK 15.8bn in 2022.

The pension fund’s 10-year average return was 3.4 per cent, close to the 3.5 per cent standard used by pension funds when calculating the actuarial balance.

Since 2019, Brú pension fund’s net assets have increase by 57.8 per cent to ISK 393.2bn.

The pension fund is currently in the process of merging the Reykjavík City Employees' Pension Fund into the fund, with both boards approving a letter of intent to merge from 1 January 2024.

This merger proposal is being processed by the guarantor of the fund, the City of Reykjavík, and a result is expected to be published “in the coming months”.

Commenting on the annual report, Brú Pension Fund chair, Auður Kjartansdóttir, said: “Conditions on the securities markets were somewhat volatile in 2023. To counter rising inflation, the Central Bank of Iceland raised its main interest rate.

“Those increases had a major impact on both the domestic bond market and the domestic stock market, which had a rather difficult upturn during the year.

“Foreign markets, on the other hand, had a very good year and gave the fund a good return. The fund's performance during the year was therefore better than it looked until well into the year.

“The fund is a long-term investor and the fund's return in recent years has been good, except for 2022.”

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