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ANNUALREPORT
1820
3
GENERAL INFORMATION
GEROA: 2018 IN FIGURES
2018 MILESTONES
GOVERNING BODIES
MARKETS REPORT
Page
ACTUARY`S REPORT
AUDITOR`S REPORT
ANNUAL ACCOUNTS
30
35
42
Page
6
4
10
20
22
Lugaritz Pasealekua, 2720018 Donostia (Gipuzkoa)
GEROA PENTSIOAK, EMPLOYMENT EPSV
www.geroa.eus
Winter:
• From 09:00 am to 2:00 pm• From 15:30 am to 17:00 pmFriday:• From 09:00 am to 2:00 pm
Summer:
(From 6/1 to 9/14)• From 08:30 am to 2:00 pm
[email protected]@[email protected]
Call Center: 943 317 022Contributions Dpt.: 943 317 279Benefits Dpt.: 943 317 296Accountancy: 943 317 281Investments: 943 317 278
4
GENERAL INFORMATION 1
5
Signatory of:
Independence Parity Closenessto Members
SocialCommitment and
Responsibility
Professional approachto the commitments
acquired
OUR VALUES
GEROA PENTSIOAK, EMPLOYMENT EPSV, with Tax ID Number V20.548.244, began its activity in 1996 and is registered in the Official Euskadi E.P.S.V. Register with the number 178-G.
VISIONTo be an Organisation in which our members feel they play a part and where they value the comparative advantage that it offers them in being able to maintain their quality of life during their retirement, as well as protecting them against situations such as disability and death.
MISSIONGEROA PENTSIOAK is an employment EPSV comprised, in equal parts, of ADEGI (Gipuzkoa Companies Association) and Trade Unions, the objective of which is to supplement the state pension of the workers from the companies of the member sectors. With this objective, the contributions, made in the same way during the working life of the workers, are managed by a technical team charged with the duty of managing them in an independent, efficient and sustainable manner in the long term, with the aim of reducing the loss of purchasing power of the pensioners.
The sponsoring members are:ADEGI, with registered address at Paseo Mikeletegi 52, 20009 Donostia-San Sebastián, Gipuzkoa.
And the trade unions:ELA, with registered address at Calle Consulado 8, 20011 San Sebastián, Gipuzkoa.LAB, with registered address at Calle Pokopandegi 9, 20018 San Sebastián, Gipuzkoa.CC.OO., with registered address at Calle Carlos I 1, 20011 San Sebastián, Gipuzkoa.UGT, with registered address at Calle Catalina de Erauso 7, Donostia-San Sebastián, Gipuzkoa.
The Organisation’s Governing Bodies are composed equally of employers and trade unions.
6
GEROA: 2018 IN FIGURES2CONTRIBUTIONS
INVESTMENTS
BENEFITS
20SECTORS
92.43MILLION €
CONTRIBUTIONS COMPANIES
9,294
1 Eko-Rec
NEWASSOCIATECOMPANIES
3INCOMING
MOVEMENTS €51,088
INCOMINGMOVEMENTS
AMOUNT
52.98 M€37.30 IN CAPITAL15.68 IN ANNUITY
1,915 Retirement338 Total Perm. Disability159 Abs. Perm. Disability
11 Severe Invalidity174 Death
PAYMENTS
TO 2,597PARTNERS
(Incapacity and Death of Active Partners)
BENEFITS WITH ADDITIONAL
CAPITAL
375€ 12,597,641
of which€4,814,762 is
additional capital
61OUTGOING
MOVEMENTS
€451,261OUTGOING
MOVEMENTS AMOUNT
MINIMUM AMOUNT OF ANNUITY
AVERAGE AMOUNT OF RETIREMENT ANNUITY 2018
YEAR 2018: €173YEAR 2019 : €175
€182.47
BREAKDOWN FUND 1
BREAKDOWN FUND 2
FIXED INCOME100%
11.37%
46.78%35.11%
6.75%
SHORT-TERM
FIXED INCOMEEQUITIES
OTHERS
INVESTMENTS IN BASQUE COUNTRY
52 1731.0TOTAL AMOUNT OF
DIRECT INVESTMENT 2018
MILLIONS €
14.59%
JOBS AT INVESTEDCOMPANIES
IN 2018
NEW JOBS AT COMPANIES INVESTED BY ORZA
IN 2018
7
AVERAGE WORKER SAVINGS SINCE 1996
€36,479
PROFIT
€15,373 42%CONTRIBUTIONS
€21,107 58%
YIELD AND COSTS COLLECTIVE
ASSETS UNDER MANAGEMENT
OUR MANAGEMENT
MEMBER SATISFACTION
FUND 1ASSETS
FUND 2ASSETS
GLOBAL SATISFACTION
WORKERS WHO WISHTO CONTINUE CONTRIBUTING
WORKERS WHO AGREE WITH THEIR CONTRIBUTIONS OR WISH TO CONTRIBUTE MORE
SOLVENCY MARGIN
NET WORTHOF THE ENTITY
58.94%-3%
1,954MILLIONS €
MILLIONS €
40.35MILLIONS €
31MILLIONS €
91.50%
7.4387%97%(+0.56%)
2,028
Average age 43.33 años
% of total workers in GIPUZKOA 36%
66%MEN
34%WOMEN
4,55%113,298MEMBERS WITH CONTRIBUTIONS IN 2018
STAFFSERVICE IN BASQUE
LANGUAGE
MEN
WOMEN2286%
MEMBERS WITHOUT CONTRIBUTIONS IN 2018
MEMBERS WHO ARE RECEIVING ANNUITIES
BENEFICIARIES WHO ARE RECEIVING ANNUITIES
154,5802,377408
6 16
1 YEAR 10 YEARS Since 1996
CPI 1.20%
-4.84%
1.22%
6.04%
2.17%
6.10%GEROAAVERAGE Fixed Mixed
Income (data from INVERCO) -4.16% 2.23% 2.93%
0%GEROA LIFETIME
ANNUITIES
1.50%GEROA TEMPORARY
ANNUITIES1.20%
CPI
1.60%STATE PENSION
ANNUITIES REVALUATION
0.11%ADMINISTRATION COSTS
0.02%DEPOSITARY COSTS
0.03%INTERMEDIATION COSTS
0.30%THIRD-PARTY FEES
78.18%TURNOVER RATIO
1 DAYAVERAGE PAYMENT PERIOD
COSTS
YIELD
8 9
10
2018 MILESTONES3
11
In 2018 we continued to work on the challenges established in our Management Plan, a highly ambitious plan, not only due to the diversity of materials and the myriad of regulatory changes occurred in recent years, but because we are increasingly more aware of the importance of complementary pensions in a society where we are seeing the daily protests of our pensioners due to their continuous loss of purchasing power.
• Good Governance• IPS-benchmark portfolio• Strategic thinking• Innovation• Communication • Team• Continuous improvement• Society• Level of satisfaction
Furthermore, the Risk Management focussed on the points indicated in 2017 as having an intermediate or high level, as follows:
• Internal Risks such as the cash accounts control currently carried out by the depositary bank, or the Reputational risk, which endeavours to minimise with the development of the Code of Conduct and the Conflict of Interests.
• Having passed a Cyber-Risk audit in 2017, we have introduced the recommendations made in the document and have organised a talk to raise awareness.
• GEROA’s main asset lies in people and, with a view to preventing a deterioration in the working climate, an agreement was made to analyse the psycho-social risks, to be carried out in 2019.
• Another of the points with most risks is Confidentiality, and, aware of this, we ran an audit based on the New Data Protection Regulation, with satisfactory results and an explanatory talk.
• We have also worked to enable organisations to monitor Arrears.
It is important to highlight the value of our alliances; that’s why this year we have created a Working Group with the main Voluntary Social Welfare Agencies: Lagun Aro, Elkarkidetza and Itzarri, as well as with another similar body, but at state level, Montepío Loreto, in order to share knowledge, highlighting the analysis of computer tools or Socially Responsible Investment.
On the one hand, we ran the first Internal Audit, focussed on revising all of the requirements established in relation to Good Governance, leading to revision of the Manual, highlighting inclusion and diffusion of the catalogue of Conflicts of Interest and incompatibilities and establishment of the Whistleblowing Hotline in the Code of Conduct, as well as development of the procedures on Aptitude and Integrity, and of the Depositary Policy.
The Actuarial Function report also includes, as well as the evaluation of the mathematical provisions, a series of scenarios, concluding that in any event, the Entity’s Solvency Margin, standing at more than 58%, is more than enough to cover the life annuities.
2017 was a year in which we developed Good Governance policies and adapted the way we work to the new regulations, 2018 was the year when all of these changes were introduced with the setting in motion of different committees.
YOUR FUTURE, OUR RAISON D’ÊTRE
COMMITTED TO GOOD GOVERNANCE
OURCHALLENGE
FOR2018
At Geroa we know it’s not enough simply to do things well; it’s also important to tell people what we do, how we do it and why.
Accordingly, and as a result of the work carried out in the previous year, this year we sent out a simulated pension of what our members would obtain which was visually explanatory and using very simple language. We are currently working on a similar document to communicate the Statement of Movements and Accumulated Pension.
Additionally, knowing the importance of digital media nowadays, this year work is underway to improve the Private Area of the website, which we expect to set in motion in the first half of 2019.
On the other hand, not wanting to miss the chance to make ourselves known to the new members joining the Entity, we are also updating our Welcome Leaflet.
In the same way, we have given several explanatory talks about the GEROA model at companies and organisations, specifically at Engranajes Juaristi, Aguas del Añarbe, Gureak, ELAY, and at the UGT union congress in Madrid.
With a view to improving knowledge through training in more technical aspects, legislation or attitude, as well as physical and emotional wellbeing, a series of training programmes have been organised. We also gave importance to gi-ving two of our employees a course on fire ex-tinction methods.
In this respect, all of our staff attended 4 talks on Managing Emotions given by Tomás Elorriaga, who also gave a presentation on “The Healthy Company” at our Annual Meeting.
12
MANAGEMENT AND CONTINUOUS IMPROVEMENT: THE ROAD TO EXCELLENCE
Committed to Continuous Improvement, for yet another year GEROA maintained the ISO 9001:2015 Certification.
Proof of this is the improvements made to the computer application, thereby simplifying our professionals’ work.
Our Entity seeks at all times to find the best suppliers, and although the changes mean added effort, the reward is always worthwhile. In 2018 we changed the Depositary Bank, starting to work with the sector leader: BNP PARIBAS. Similarly, we change auditors every 7 years, meaning that from this year on, KPMG will be responsible for auditing the accounts, as they have been doing for the major Voluntary Social Welfare Agencies.
Furthermore, for the third time we have been named Best Multi-Company Pension Fund in Spain by the prestigious IPE magazine, at the event held in Dublin.
But what makes us proudest is having been finalists in the European categories “Long-term Investment Strategy”, “Best Multi-Company Fund” and “Variable Income Management”, where GEROA competed with European funds which manage assets 10 times greater than ours and with longer experience.
13
In 2018, two new professionals joined the GEROA family: Pablo Elosegi, who joined the Investments Department in February, and Ana Gallego, who took up her position with the Members Service in September.
COMMUNICATION: TO GO FURTHER AND BETTER
OUR TEAM: THE FAMILY GROWS
Once again, a Satisfaction Survey was conducted this year among our members, highlighting that the Global appraisal has risen by 0.56%, with a score of 7.43, and very positively considering the fact that 87% would like to continue contributing if they changed jobs and that they recommend GEROA with a score of 7.7.
On the Complaints side, most are due to discrepancies with the way benefit is received, thereby prompting us to strengthen the message that GEROA is not a financial instrument, but that it has a clear-cut objective which is simply to complement Social Security pensions.
People are GEROA’s most important asset, which is why a number of steps have been taken this year to improve their life-work balance.
20
25%
75%
43.05 years
100%
40%
85%
100%
1,124.50
40%
22
27%
73%
43.24 years
100%
41%
86%
100%
961
41%
2017 2018
STAFF
MEN
WOMEN
AVERAGE AGE
% INDEFINITE CONTRACTS
% WITH UNIVERSITY QUALIFICATIONS
% STAFF CAPABLE OF ATTENDING TO PEOPLE IN BASQUE
% PARTICIPANTS IN TRAINING EVENTS
No. TRAINING HOURS
% STAFF WITH REDUCED WORKING HOURS
On the other hand, we have introduced a routine of active micro-breaks involving stretching exercises and a special 30-minute session in collaboration with Sasoi.
But we don’t only focus on these areas; we also work on the Environment, reducing energy consumption with LED lighting, improving temperature control and replacing the carpet with another certified as Mission Zero®; we have also reduced our paper consumption by increasing digital communications, as well as plastic consumption by replacing bottled water with tap water.
14 15
AND WE ALSO COLLABORATE WITH SOCIETY
We continue to work in numerous areas related to Society; the main area is financial education and spreading the culture of saving for the future
In this respect several activities have been started with the university; on the one hand, Virginia Oregui participated as a speaker in the University of the Basque Country Summer Courses, and on the other, a Contract of Collaboration with the University of the Basque Country and Deusto has been signed in order to carry out a study on the economic needs of pensioners and the repercussion of the general economy on their loss of purchasing power.
Like in other years, we have continued to give talks in different forums, specifically:
• Talk at the Barcelona College of Actuaries• Talk at the Ataun Pensioner’s Association• Talk at the Idiazabal cultural centre
We are increasingly faced with a more collaborative society; proof of this is the Euskalit Founda-tion where Basque companies share their management experiences in the interests of excellence. Two people from GEROA’s team therefore belong to its Evaluation Club and have participated in the Evaluation and Contrasting of other organisations.
ASSET TYPE OBJECTIVE RESULTPOLICYSRI takes account of financial and extra-financial criteria (ESG: environmental, social labour and good governance criteria) in order to obtain financial returns for the member at the same time as a positive impact on society and the environment.
Environmental Social Governance
COMMITMENT TO SOCIALLY RESPONSIBLE INVESTMENT (SRI)
PUBLIC DEBT BONDS AND GOVERNMENT
BONDS
Countries with a rating of more than 70 in the Bloomberg “ESG Country Risk”
rankingMin. 95% 100%
DEPOSITS, CURRENT ACCOUNTS, FIXED-
TERM DEPOSITS, CURRENCY…
ESG qualification from Sustainalytics or RobecoSAM Mín. 75%
81.60%(94.58% have a rating of
more than 70)
STRUCTURED PRODUCTS AND
DERIVATIVES
ESG qualification from Sustainalytics or RobecoSAM Mín. 75%
Structured: 86.22%
(94.40% have a rating of more than 70)
Futures and options:
100%(100% have a rating of
more than 90)
FUNDS, ETF AND INVESTMENT
THROUGH VENTURE CAPITAL COMPANIES
The Management Entities must introduce ESG criteria Mín. 75% 97.12%
Management Entities which are signatories of the UNPRI Mín. 75% 94.46%
Excluded due to behaviour 0 0 Management Entities affected
CORPORATE FIXED INCOME, EQUITY AND
COVERTIBLES
Countries with a rating of more than 70 in the Bloomberg “ESG Country Risk”
rankingMin. 95% 99.64%
Sustainalytics or RobecoSAM ranking: Rating of more than 70 Min. 50% 80,33%
(of those with ranking)
Excluded due to behaviour:Positions with companies which fail to
comply with any of the principles of the Global Compact and/or those with a
level 5 controversy rating
0%(unless undoing positions is prejudicial for the member)
0.00%
Level 4 controversies or securities under observation - 22 Companies
under observation
The following table summarises the results obtained on 31/12/2018:
During 2018, we actively managed the financial risks inherent to markets and assets we invest in, as well as environmental, social labour and good governance, aiming to select companies that demonstrate the best long-term profit/risk binomial combined with our entity’s social res-ponsibility values.
We therefore make a three-monthly analysis to guarantee that the companies we invest in are not involved in some kind of controversy or in-cident in relation to ESG issues. We also study their fulfilment of the United Nations Global Compact principles. In the event of serious con-troversy or failure to meet the Principles of the Global Compact, certain companies are declared not suitable for our investments.
Furthermore, we make an annual analysis of the Pension Entities through which we invest, maintaining an active dialogue with them to guarantee their suitability.
By way of an example, social assessment of the Entity’s assets has meant that certain positions in our possession declared “unsuitable” have been sold.
16 17
We understand that it is our duty as institutio-nal investors to contribute to the development of our economy by investing in local compa-nies. As well as the investments made in listed companies, we also make direct investment through ORZA.
Investments have materialised in innovation, biotechnology and energy efficiency compa-nies, among others. In 2018 the investments made through Orza amounted to more than 8,384 million euros, having helped to generate 173 new jobs in its invested companies.
We must remember that we have been collaborating with PRI since 2016 on the initiative “PRI Statement on ESG in Credit Rating” asking the leading rating companies to incorporate environmental, social and good governance criteria to their qualifications. Said initiative remains in place this year, 2018.
We have directly participated in 5 local start-ups with an investment of €1,007,631.96, having granted 3 new micro loans.
We started 2019 with a new cycle during which we will present the Strategic Plan for the years 2019-2021. A plan in the reflection and design of which the members of the Board and mem-bers of the management team are participating, without losing sight of our members’ needs and opinions and always taking account of the cu-rrent circumstances when the debate on pen-sions is on everybody’s lips, with weekly pensio-ners’ demonstrations, proposals to extend the GEROA model to other territories and a conti-nuous rise in the Social Security deficit which has European bodies with their backs against the wall and where additional pension contribu-tions are starting to be considered as being an increasingly more necessary piece in the Welfare state puzzle.
In 2018 the right to vote was exercised at 16 general meetings of shareholders/bondholders. We exercise our voting rights in the companies we invest in (participation of more than 0.05%), representing the interests of our members, always with a pledge to the long-term sustainability of companies and in accordance with environmental, social and labour and good governance criteria. Furthermore, we have maintained active dialogue in terms of ESG in a company.
As regards specific measures, and paying atten-tion to the challenges of marine pollution, plastic waste and the reuse of scarce resources, we un-derstand that companies have the opportunity to lead the development of plastic supply chains with no loss of pellets, the second direct sour-ce of marine microplastic pollution, with more than 200 thousand tons entering the ocean every year. From Geroa, we have participated in the initiative: “Addressing pellet loss in global supply chains”, which asks companies in the sector for:
• A commitment to the zero pellet loss ini-tiative in their own companies and throug-hout their supply chain.
• A commitment to evaluate progress in re-lation to this Goal throughout their supply chain by means of the collaborative deve-lopment and implementation of the appro-priate industry tools.
At Geroa we are aware that the uncertainty affecting the field of environmental, social and governance (ESG) must be proactively managed in our investments.
With a view to collaborating in the fight against Climate Change, Geroa Pentsioak EPSV has participa-ted in different initiatives promoted by the PRI. In collaboration with other entities, in 2017 we signed the G7 and G20 investment charter on climate change, thereby conveying our support for the Paris Agreement and asking governments to continue to fully support and apply the agreement. We understand that the transition towards a sustainable, low-carbon economy will boost prosperity while acting as an obvious motor for creating jobs. However, there will be transition challenges for workers, communities and countries as this change takes place. Thus, as institutional investors, in 2018 we pu-blicly pledged to work to achieve a fair transition for workers and communities in the fight against climate change.
In this respect, the Geroa Pentsioak staff, committed to the cause, have unanimously decided to play their part to reduce plastics by giving up bottled water.
WE ARE ACTIVE SHAREHOLDERS
INITIATIVES
CREATING INDUSTRIAL NETWORK IN GIPUZKOA and BASQUE COUNTRY
ENTREPRENEURSHIP AND INNOVATION SO NOW WHAT?
Thanks to direct investment by GEROA, the beneficiary companies were able to create 52 jobs.
Signatory of:
Statement on ESG in credit ratingshttps://collaborate.unpri.org/group/statement-on-esg-in-credit-ratings-2406
Tackling plastic pellet loss across global supply chainshttps://collaborate.unpri.org/group/tackling-plastic-pellet-loss-across-global-supply-chains-3200
Global investor letter to G7 and G20 governments on climate changehttps://collaborate.unpri.org/group/global-investor-letter-to-g7-and-g20-governments-on-climate-change-2776
Statement of investor commitment to support a just transition on climate changehttps://collaborate.unpri.org/group/statement-of-investor-commitment-to-support-a-just-transition-on-climate-change-3191
18 19
GOVERNING BODIES
20
4
21
The Governing Bodies are the General Assembly and the Governing Board, and they are composed equally of the Adegi Association of Employers and the ELA, LAB, CC.OO (Workers’ Commissions) and UGT trade unions.
Note that in 2018 we have made a change, given that our Secretary, Mari Cruz Vicente Peralta, repre-sentative of CC.OO, is now the state-wide Confede-ral Secretary for Union Action at CC.OO. Her place has been occupied by Miguel Reimundez. As a new member, we have Oscar Arenas who, together with Zorion Ortigosa and Itziar Garmendia, appointed in late 2017, attended a welcome session at which the GEROA model was explained to them.
MODIFICATIONS IN THE BENEFITS REGULATIONArticle 6.3.1 has been modified. DEADLINE OF APPLICA-TION of the Services regulations adding the following:(...)“The incomplete requests for benefits or mobilization will remain in the Entity for six months, after the dead-line it will be attempted to return the documentation or it will be destroyed if it were not possible.The reception of said request will not be recorded. “
The different positions in 2018 were:
President:
Joseba Villarreal Olaizola(Representative of ELA)
Vice-president:
Nerea Zamacola(Representative of ADEGI)
Secretary:
Miguel Reimúndez(Representative of CC.OO.)
Treasurer:
Patxi Sasigain(Representative of ADEGI)
None of the members of the Governing Board receive remuneration for their representation in the Organisation
GENERAL ASSEMBLY
UGT 4
CC.OO. 8
ELA 25
LAB 16
ADEGI 53
BOARDS OF MEMBERS
UGT 1
LAB 4
CC.OO. 2
ELA 6
ADEGI 13
4 8
5316
25
1 2
134
6
2322
MARKET EVOLUTION5
The market had forecast a positive synchronisa-tion in world growth for 2018, with acceptable rates in all economic zones and establishing that incentive and deflationary policies were a thing of the past.
The evolution of the financial markets in 2018 was poor, as it was, unfortunately, in the majority of assets. Almost no assets have served as a haven, and it has therefore been very difficult to find positive returns of a certain magnitude capable of compensating assets with negative returns. Even having been invested in liquidity the return would have been negative.
The reasons for this negative evolution of the financial markets are varied:
• Uncertainty regarding development of the trade war between the United States and China which has had a very negative effect on the financial market, mainly the stock exchange, and has very particularly affected sectors such as automotive and technology.
• Doubts regarding the maximum rise of US Federal Reserve interest rates have generated fears of an imminent recession in that country’s economy. Furthermore, President Trump constantly meddles in the mandate of his country’s central bank, to the point of sparking rumours of firing its Chairman, Jerome Powell.
• Probable slowing down of the cycle: although the signals are mixed, there are advanced indicators to the effect that economic growth may slow down, mainly in Europe, Japan and China.
• Political fragility in Europe as a result of the arrival to power of certain governments of
populist overtones, especially in Italy, and their positioning against containment of the deficit and of public debt, Merkel’s succession and the
uncertainties of a disorganised Brexit.
• Internal North American politics: the Trump presidency, as expected, is not treating the country’s internal politics light-handedly. The mid-term elections meant the loss of Congress majority for the Republicans. This has added greater uncertainty, one example of which is the administration shutdown in the closing days of the year.
• Demanding valuations in the North American variable income market which left little margin for a rise in equity markets, mainly in the technology sector. This, together with a sort of foretaste of a last phase of economic recovery with full employment, higher wage costs and fewer future business margins, causing a peak of maximums throughout 2018, may partly explain the fall experienced in the last three months of the year.
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The year began with great optimism, European growth steadied at more than 2%, emerging countries continued with their reforms, although with lower rates, and the United States, prompted by its tax reform, found itself leading the upwards surge of developed countries, continuing with its policy to raise interest rates by 0.25% every three months. It even looked as though the big fear could lie in higher inflation rates.
However, an aspect such as Protectionism, which has in the long run been one of the keys of the year, has been gaining importance as it progressed, particularly between the United States and China. The technology sector, and particularly companies like ZTE and Huawei, are where it has had the greatest impact. President Trump started the year with generalised trade sanctions against China and against Europe on steel and aluminium. In retaliation, the countries have established tariffs for a series of North American products. After all the threats, the United States has finally renegotiated the NAFTA trade agreements between Canada and Mexico, a free trade agreement with Japan, and has removed all of the trade sanctions previously established with Europe. The relationship with China is, however, more complicated.
On the political side, Italy and its new populist coalition government have had important conflicts with the European Commission, resulting in the acceptance of budgetary limits by the Italian government. At the moment of greatest tension, in May, Spain saw its government change as a result of a motion of censorship led by the Socialist Party. Both aspects led to a rise in the risk premiums of the surrounding countries, although they finally ended the year at intermediate levels.
On the other hand, the European Central Bank announced that the asset purchase programme or QE was to end in late 2018, as was expected; as a result, the balance of the said institution would stop increasing. Only maturing securities will be reinvested in new assets.
However, we must stress that while business profits in the USA hit historical heights with average growth rates of more than 20%, and European results were pointing in the same direction, although with more modest growth rates – yet far from negligible at 10% – the last three months of the year were terrible from the point of view of the financial markets as a result of the rise in FED interest rates and of all the points explained above. This caused important crashes, making December one of the worst since 1930 on the American stock exchange, a consequence partly triggered by the automatic massive sales which have accelerated and deepened the blow.
On the other hand, we are starting to see how many activity indicators, mainly European, Chinese and Japanese, reflect a considerable weakness. In the case of Europe, largely due to the chaos caused in a sector as important as the automotive industry and its parts due to the announcement that the production of diesel vehicles was to be paralysed.
VARIABLE INCOME
EurostoxxGermany
FranceSpain
ItalUK
USAJapan
EmergingGlobal
-14.34%-18.26%-10.95%-14.97%-16.15%
-12.48%-6.24%
-12.08%-16.64%-10.44%
FIXED INCOME
German Bond French BondSpanish BondItalian Bond
Portuguese BondUK BondUS Bond
Japanese BondEU credit
2.69%1.14%
2.82%-1.94%4.12%1.49%
0.90%0.94%0.41%
CURRENCY against €
DolarYen
Pound Sterling
4.83%7.73%-1.12%
RAW MATERIALS
OilGold
AgricultureMetals
-20.42%-4.46%-10.79%-19.48%
INDEX EVOLUTIONWith respect to the international aspect, the situation in Korea has improved following the tensions experienced in the first three months, reducing political pressure in the zone; however, relations between Iran and the United States have worsened, and the nuclear agreement has been broken. Turkey also had its moment of political tension which fed an economy already weighed down with problems, causing an unprecedented devaluation in the Turkish lira and a rise in interest rates. Elections were held during the year in Mexico and Brazil. In Mexico the left-wing candidate landed the majority and in Brazil the populist candidate was elected, causing the stock exchange to rise strongly in the latter case.
The important drop suffered by Merkel’s party has prompted her to set a date for abandoning both politics and her leadership of the German government, adding uncertainty to the European project. The possibility that the Merkel-Macron tandem could boost the European project has run into a brick wall due to the internal problems of both leaders. Continuing in Europe, Theresa May, Prime Minister of the United Kingdom, came to an agreement to leave the Union, but the government in that country is experiencing enormous problems in its endeavours to obtain parliament approval of the separation agreement.
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The main negative yield factor was exposure to equities of -4.23%; while, to a lesser degree, the market fixed income was -0.84% and the other portfolio components demonstrated a flat behaviour during the financial year.
The unweighted and weighted yields are as follows:
27
EQUITYOTHER
DIRECT I.MARKET FI
SHORT TERM FIAT-MATURITY FI
35%3%4%36%11%11%
100.00%
-12.09%-3.33%3.75%-2.33%-0.18%3.18%
-4.23%-0.10%0.15%
-0.84%-0.02%0.35%
GROSS YIELDCOSTS
NET YIELD
-4.69%-0.15%
-4.84%
ASSET TYPE WEIGHTINGS UNWEIGHTEDYIELD
YIELD WEIGHTEDBY ASSETTYPE
The contribution to returns for this kind of asset is as follows:
0.00%
-1.00%
-2.00%
-3.00%
-4.00%
-5.00%
-6.00%
-4.23% -0.10% 0.15%
-0.84% -0.02%
0.35%
-0,.15% -4.84%
WEIGHTED RETURN PER ASSET TYPE IN 2018
26
FUND 1
In the Fund 1 portfolio we find the assets of the Technical Provisions where the Member assumes the investment risk and the mathematical provisions of the members and beneficiaries with actuarial annuities. The equity of this fund at 31/12/2018 stood at 1,954 million euros.
The yield of this investment fund was negative, standing at -4.84%. The Entity’s compound yield since the beginning stands at 6.10%, representing a revaluation of 288% since the beginning.
If we compare the return with the risk incurred, the figures are as follows: volatility of the net asset value during the 2018 financial year was 5.10%. The Sharpe ratio, a measure which calculates risk-adjusted return, stood at -0.95%. In a model portfolio with similar characteristics the yield was -3.75% with a volatility of 4.00% and a Sharpe ratio of -0.94%.
Management of the portfolio was active, mainly in equities, focussing on countries, sectors and securities with potential and which could offer good revaluation. Given the generalised falls experienced by all stock markets, mainly during the last three months of the financial year, the net asset value dropped, and with it, the accumulated profits, which were modest as a result of the low yield of the other assets, especially the European Fixed Income which has negative short-term rates, and are close to zero in the long term.
It has been very difficult to contain the volatility, and although coverage instruments were used throughout the year, these did not function as expected, particularly during the last three months.
Regarding Fixed Investment, the Entity has invested 2.58% of the portfolio in ORZA AIE, holding 50% of the entity constituted to invest in companies in the Basque business network. During 2018, Orza made investments for the value of 8.84 million euros.
The company Orza AIE is valued at cost less the provisions for valuation adjustments plus realised and unrealised gains.
Pursuant to its commitment to Gipuzkoa’s society, GEROA created a specific line of direct investment in start-up companies with the collaboration of Elkargi. In 2018, this initiative has materialised with the investment in Cybersurgery, with a pledge to invest 1 million euros, over several financial years,
having invested 300 thousand euros to date. Additio-nally, 2 capital increases have been made: in Metal 78 for €150,000, and another in Nesplora for €27,632.
YIELD
1.00%
3.00%
0.00%
2.00%
-1,.00%
-2.00%
-4.00%
-3.00%
-5.00%31/12/17 30/06/1831/03/18 30/09/1831/01/18 31/07/1830/04/18 31/10/1828/02/18 31/08/1831/05/18 30/11/18 31/12/18
GEROA-4.84%
COMPARABLEPORTFOLIO-3.75%
PORTFOLIO BREAKDOWN
58%
11%
11% 36%35%
3%4%
Fixed Income management focussed on maintaining medium-low duration and on investment in bonds with a repurchase agreement, which generate yields higher than those which don’t have such an agreement.
The investment is still mainly materialised in euros, 92%, and to a lesser extent in US dollars, 6.5%.
The investment portfolio stood, at the end of the financial year, at 1,895 million euros, including the liquidity and the amount committed in futures and excluding accrued and uncollected interest. Investment in Basque Country securities amounted to 14.59%.
OUR PORTFOLIO
SHORTTERM F.I.
F.I. TOMATURITY
MARK TO MARKET F.I. FEESOTHEREQUITY DIRECT I. TOTAL
EQUITYOTHER
MKT TO MKT F.I.F.I. AT MATURITY
PRIVATE EQUITYTOTAL FIXED INCOMESHORT TERM F.I.
28
FUND 2
The Fund 2 portfolio maintains assets containing the equity of members who are drawing their benefits as temporary annuity.
The equity of Fund 2 amounts to 31.2 million euros materialised in liquidity and Fixed Income securities at maturity which are used to match the benefits paid out every month. Thanks to this, the annuity revaluation was 1.5%.
The expected yield for the year is around 3.42%, with a volatility of some 6.58%. Like last year, this binomial is the consequence of a Fixed Income standing at levels in the region of 0 and Equity with modest revaluation expectations. It is practically only Equities which can generate value.
In the Stock market, the analysts forecast a start of year with greater volatility, stressing that it will depend on the evolution of business results and of interest rates in the United States. For the American stock exchange, a 12% rise in profits is expected, while for the European exchange the figure is 11%.
As far as our management is concerned, in 2019 the Equities weighting will be reduced to a temporary maximum of 30%, tending towards a yearly average of 25%, with a view to avoiding high volatilities and losses, even if these may be passing.
GERMANY
FRANCE
SPAIN
ITALY
PORTUGAL
USA
UNITED KINGDOM
JAPAN
COUNTRY
0.24%
0.71%
1.42%
2.74%
1.72%
2.68%
1.28%
0.00%
10-year rateon 31-12-2018
Evolution of the year 2019 looks uncertain after the 2018 financial year practically ended in free fall. Generally speaking, the analysts present a macroeconomic picture of reduced growths worldwide with the absence of inflationary tensions, stable interest rates and profits growing at rates in the region of 7%.
Political and commercial uncertainty in the United States, mainly due to the fiscal shutdown of the administration and negotiations on foreign trade with China, will condition the evolution. The North American monetary policy seems to be more stable and interest rates are not expected to rise in almost the whole year. However, if the labour market continues to demonstrate its current strength, the Federal Reserve could surprise the market with new rises, an aspect not considered by the current situation. With this North American monetary stability, the emerging markets and high-yield bonds may be obvious options. The dollar, however, may experience certain downward movements.
On the other hand, in Europe the decision on Brexit, the situation in Italy, the future of the automotive industry and incognitos regarding the monetary policy, are the main catalysts for the first few months of the year.
In the Fixed Income chapter, and mainly in Europe, we are waiting for some kind of message from the European Central Bank, in the first place to know who will be in control of the institution, now that Draghi’s mandate has come to an end, and if some kind of move will finally be made to raise interest rates in late 2019. The current levels represent “no yield”, a factor which has a negative effect on the whole financial sector and on the Fixed Income portfolio.
FORECAST FOR 2019
Own Resources constitute the Entity’s Net Equity, which amounts to 42.8 million euros, enabling the minimum Shareholder’s Equity coverage of 0.05 million euros, the Safety Mar-gin of 2.40 million euros, the Solvency Margin of 2.47 million euros and maintaining voluntary reserves of 37.61 million euros.
The assets are mainly materialised in liquidi-ty, with 747 million euros in loans to start-ups and micro loans to members, according to the direct investment lines approved with a view to fostering the economy of Gipuzkoa. In 2018, the amount granted in micro loans amounted to €30,000 (2 members), while a loan of €500,000 went to the start-up, Irisbond.
OWN RESOURCES
29
ACTUARY’S REPORT
30 3131
32 33
35
AUDITOR’S REPORT
34
36 37
38 39
40 41
ANNUAL ACCOUNTS
42
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