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Report calls for greater role for second pillar in Poland’s development

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Polish pension funds (OFEs) can play a major role in the government’s recently announced Responsible Development Plan but only if they are allowed to expand their investments, argues a report written by PwC Poland in co-operation with the Polish Chamber of Pension Funds (IGTE).

The so-called Morawiecki Plan, unveiled in February by the eponymous development and deputy prime minister Mateusz Morawiecki, is based on five pillars: re-industrialisation, developing innovative companies, capital expansion, foreign expansion (including exports) and sustainable social and regional development.

The plan does not discuss OFEs but does mention foreign pension funds as potential sources of capital.

PwC believes the OFEs can play a major role in helping fulfil the plan, while strengthening the benefits for future retirees through a portfolio diversified beyond their current 80%-plus holdings in equities.

OFE assets at the end of 2015 accounted for 8% of the PLN1,725bn (€402bn) of Polish household savings.

By their nature, they are both a sizeable and stable, long-term source of finance for the Polish economy, in particular Polish businesses.

In the context of the plan, the report identifies real estate, especially rental properties, infrastructure and private equity, notably venture capital, as the most attractive investment prospects.

Yet they are largely off-limits to the OFEs.

In the case of real estate – the most important alternative asset class for pension funds elsewhere – OFEs can only invest indirectly through equity issued by developers and construction companies. 

There are no Polish Real Estate Investment Trusts (REITs) as yet despite several years of legal debates, while REITs from countries such as Australia and Germany have invested in Poland.

PwC points out that a legal change allowing OFEs to invest up to 10% in real estate would release some PLN14bn in project financing.

The OFEs have also demonstrated an appetite for infrastructure investment.

Before the 2014 pension reform, which banned them from investing in sovereign or state-guaranteed bonds, the funds were big purchasers of long-term bonds issued by the state-owned bank BGK for financing the country’s road development fund.

As in the case of real estate, OFE investment in infrastructure is currently indirect, through buying revenue bonds or units in specialist investment funds.

A 5% allowance in infrastructure investment would generate some PLN7bn, equivalent to 19.4% of total infrastructure construction expenditure in 2014.

Venture capital (VC) investment, a common vehicle for funding innovative companies and start-ups, remains problematic.

The VC market in Poland is relatively undeveloped even by CEE standards – the law does not allow for OFE investment into VC commitments, and the fund managers themselves are unenthusiastic.

Yet, as the report points out, even a 1% pension fund allowance would double the size of Poland’s VC market.

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