Analysis of Factors Affecting the Profitability of Pension Funds

Pension funds have an enormous role in the development of the economy and social security of a country. As one of the main sources for sustainable social development, their major goal is to safeguard and increase the population’s pension savings. In the Republic of Armenia, the asset structure of pension funds is similar to internationally accepted standards, and bonds have the biggest share of the portfolio. However, the share of alternative investments in Armenian pension funds is still significantly smaller than in other countries. Despite Armenian pension funds’ five-year average return until 2022, it was relatively high compared to other countries. However, in 2022, for the first time since their foundation, Armenian pension funds recorded a negative return, which received a wide response among the population. Thus, it is important to assess the causes of the negative performance of pension funds. Because in previous years, pension funds had high returns, it can be concluded that the primary cause of the 2022 negative return was an external shock, first of all due to a decline in foreign assets, investments in Armenian government bonds, and international investments. For the mitigation of these risks, pension funds can hedge their currency exposures and also diversify their investments in foreign markets.