The fund’s chief executive officer Stefan Halldorsson told nrpn that it was currently experiencing the most volatility it had ever seen and would look for ways to deal with this.

He said: “I think, for the longer term, diversification is a number one tool for us. We are looking to broaden our exposure to alternatives and reduce volatility that way.”

Mr Halldorsson added that the fund would look for ways to reduce its exposure to the local equity market because it was dominated by financials, something that does not look like changing.

He said: “Our exposure to the financial sector hit a downturn last year, which showed us that our exposure is too large. We’re optimistic about local equity market opportunities as we feel there is long-term strength, but it is risky to get exposure to just one sector. The lack of diversification in the local market is a problem.”

Currently, the fund has a 46 per cent allocation to equities, of which about two-thirds are foreign and the remainder are domestic. It has about 2 per cent to 3 per cent in alternatives, which are mainly fund of funds and hedge funds and about 1 per cent to 3 per cent in cash. The remaining assets are in fixed income.

The scheme is effectively a hybrid defined contribution plan. Last year, its solvency level was 3.7 per cent above its liabilities. Under Icelandic law, any excess assets must be redistributed to members by bonuses or higher premiums.

For 2008, Mr Halldorsson does not predict as high an amount in excess assets, but he is confident it will be able to comfortably cover liabilities.

SA

Stefan Halldorsson, CEO

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