The main geographical change in asset allocation was a 10 percentage-point reduction in Latvian securities, to 33%.The review’s authors bemoaned the lack of domestic long-term savings instruments other than government securities and Latvenergo (green energy) bonds, and called for a greater use of financial instruments other than loans for state and local government project financing, as well as the development of real estate and forest funds.The latter have been already been launched in Estonia as an alternative asset for institutional portfolio managers.Latvian pension funds’ exposure to eastern European securities increased by five percentage points to 25%, and to North America from 4% to 8%. Exposure to western Europe fell from 16% to 14%.The active plans took advantage of stock market rallies, increasing their equity and equity fund exposure over the year by 4 percentage points to 30%, while allocation to bonds and bond funds grew from 49% to 55%.These shifts were largely at the expense of cash holdings, which fell from 15% to 7%.The balanced funds, with 16% in equities and 74% in bonds, recorded minimal changes, while the main shift in the conservative funds’ structure was a 4 percentage-point increase in bond holdings to 82%.Total net assets grew by 18.3%, or approximately €428m, year on year to €2.8bn. Of this, €53m came from investment profits and the remainder from the 6% social security contribution.Membership rose slightly, by 1.1%, to 1.27m.The much smaller voluntary third pillar generated better results, with the average return up by 1.1 percentage points to 3.38%.As in the case of the second pillar, the active funds generated the best results, of 4.34%, compared with 3.34% in 2015.Of the 11 active funds, the two US dollar-denominated plans returned an average 2.87%, against 4.40% from the remaining euro-denominated ones.The four balanced funds raised their returns from 1.71% to 2.81%. The annual gain from First Closed Pension Fund, for Latvia’s state-owned electricity utilities and part-state-owned telecommunication company employees, increased from 1.75% to 2.98%.Geographically, asset allocation likewise shifted out of Latvia, which accounted for 26% of the aggregate portfolio.Western Europe accounted for 24%, eastern Europe 17%, and global securities 16%. Membership grew by 6.8% to 272,237, and assets by 15.2% to €381m. Latvia’s second and third-pillar pension funds recorded a modest increase in 12-month returns for 2016, according to the Association of Commercial Banks of Latvia (LKA).The weighted average return for the mandatory second-pillar funds rose to 2.02%, from 1.93% a year earlier.The eight active, equity-weighted funds generated the best results, gaining 2.24% compared with 2.29% in 2015.The returns of the four balanced funds rose from 1.43% to 2.01%, while those of the eight conservative funds remained unchanged at 1.26%.