Following the steep fall of stocks on the local capital market – a EUR 7-billion fall in the past six months to be more precise – the funds remained vastly aloof of the Bucharest Stock Exchange (BSE). Even the single aggressive mandatory pension fund on the local market, Generali, invested merely 23 percent of its money in listed shares.
Since the BSE has just gone through a reenactment of its poorest half-year performance back in 2000 and its indexes have fallen by as much as 40 percent since the beginning of the year, there is little wonder why pension funds have decided to play it safe and by the rules of market analysts who say a comeback should not be expected this year. Funds stood far away from stocks, but also from derivative instruments, which managed to attract a mere of 0.10 percent of just one fund’s capital.
Back to Generali, the bulk of its capital went into state bonds – some 55 percent, according to the specialized pension portal www.pensiileprivate.ro. The remainder went into bank deposits – 17 percent – and corporate bonds – about five percent. It appears that all funds – be they aggressive investors, moderate or conservative – have shown a preference for state bonds and bank deposits this first round. Whoever did not invest massively into bonds, is sure to have put more than half of its money in deposits and the other way around.
Administrators’ main aim has been, as expected when discussing pension funds, to conserve rather than spectacularly multiply their clients’ contributions. Deposits have provided a good way to do that for two reasons. First, because banks guarantee – and this is the key-word – a certain return when the maturity of the deposit expires. The second reason is less general and more connected to local realities. Namely, to the central bank’s monetary policy.
Two weeks ago, Romania's National Bank (NBR) upped the key rate for the sixth time over the past seven months by 0.25 percent to a “psychological” level of 10 percent. Since that had already happened several times , the move failed to surprise. What did come as a bit of a shocker was banks’ quick reaction to the increases and the wave of press releases announcing interest rates on deposits heading high. Faster than ever before, banks reacted to the central bank’s decision and upped interest rates on deposits by as much as a whopping 3.75 percent. “Interest rates on deposits grew more rapidly this time compared to interest rates on loans. The NBR upped the key interest rate by 2.5 percent in the November 2007 – March 2008 period. Subsequently, interest rates on RON-denominated deposits for individual clients grew by more than 2 percent, while interest rates on RON-denominated loans grew by a mere 0.1 – 0.2 percent,” said Ionut Dumitru, Head of Research with Raiffeisen Bank.
These two reasons increased funds’ appetite for deposits. Only five of the 14 funds put less than 20 percent of their money into bank accounts. Two of them invested more than 95 percent of their capital in this type of instrument: AIG put in almost 97 percent, while Prima Pensie put 100 percent in bank accounts.
Market-wide, funds’ interest in risk-free investments translates into EUR 10.8 million invested in bank accounts and EUR 10 million invested in state bonds. On the other hand, funds’ apathy toward the BSE has translated into merely EUR 2.3 million invested in listed stocks, about a fifth of what they put into each of the other two investment categories. Mutual funds did not appeal to pension fund administrators either. Only EUR 80,000 was invested in units by just one of the 14 mandatory pension funds: AVIVA Fond de Pensii. In percentages, the score board is showing 45 percent for deposits, 42 percent for state bonds and 9.5 percent for stocks. The remainder is split between mutual funds – 0.33 percent – and corporate bonds with almost 3 percent of funds’ investments.
Market leader ING Fond de Pensii (ING FP) was among the six funds that decided to put no money into stocks. ING FP invested almost 70 percent of its money into state bonds, while second-runner Allianz-Tiriac put 80 percent of its capital in bank deposits.
Third-up, Generali put into shares just three percent more money than Allianz-Tiriac. Funds’ adversity toward the BSE is thus narrowing the gap between high and moderate risk categories.
It is also steering fund administrators closer to foreign stock exchanges. So far, only one of the 14 funds, namely the one owned by BRD, has put close to 12 percent of its capital on the Paris stock exchange. Funds cashed in their first contributions at the end of May, totaling EUR 24.1 million. The law states that they can invest a maximum of 50 percent of their capital in stocks, up to 70 percent in state bonds, a maximum of 20 percent in monetary instruments and up to 30 percent in corporate bonds. However, the Private Pension System Supervisory Commission which is the market’s main regulator placed a six-month derogation from the rule, allowing funds to place more than 20 percent of their assets in bank deposits.
By Ana-Maria David