CYPRUS – Losses at Cyprus' €300m Hotel Employees Provident Fund will be limited to around 5% this year, as its diversified portfolio and good non-bank deposit returns cushions the impact of the country's bank bailout deal, the fund said.
The island's pension funds are estimated to hold around half of their assets in deposits with local financial institutions.
Under the recent international bailout agreement for Cyprus, Cyprus Popular Bank – parent of the bank Laiki – is being wound down. Depositors with more than €100,000 at Cyprus Popular Bank and Bank of Cyprus held at Cypriot branches stand to lose at least 30-40% to help pay for the bailout.
Marinos Gialeli, chief executive of the Hotel Employees Provident Fund, told IPE: "Our pension fund will not be affected much, because we have about 15% of our total portfolio in Laiki and Bank of Cyprus, where we expecting to lose about 7.5% for 2013.
"But at the same time we have very good returns on the other categories of our portfolio, especially global, which are going to give us a positive return, which is going to minimise our losses for 2013 to less than 4%-5% for now," he said.
He said the government was planning to help pensioners who have lost money by giving that money back to them as a lump sum from the budget when they retire.
"The president of the Republic of Cyprus together with the House of Representatives have committed not to let the depositors of provident funds suffer losses," Gialeli said.
The government was now drafting a bill aimed at safeguarding the provident funds, which would be presented to the House of Representatives for voting, he said.
But assets at the Hotel Employees Provident Fund were widely diversified across investments in both Cyprus and abroad, as well as across deposits in Cypriot bank and cooperative institutions.
This meant the winding up of Laiki Bank and the large haircut on deposits held in the Bank of Cyprus had only had a limited effect on the fund, Gialeli said.
"At the same time, our fund does not hold any Cypriot shares and, thus, faces zero losses in this category," he said.
In a letter sent to members and seen by IPE, he described the fund as "the safest financial institution in Cyprus" due to its broad diversification of assets. Events in Cyprus has served as a good example as to why such funds needed to diversify all aspects of their investment, he said.
The fund's major allocations within its portfolio are a 30% allocation to Cyprus deposits, 20% loans to members, 15% to Cyprus corporate bonds and 10% to Cyprus real estate. It holds nearly 10% of assets in global equities.
Gialeli's letter added: "The fund's members will need to trust and support the institution of the Provident Fund for their retirement, since it is becoming obvious that the Social Security Fund will not suffice for their pension."