Multi-company plan target
Petros, the Rio de Janeiro based R$6bn (e3.8bn) pension fund of Brazilian petroleum group Petrobras is another scheme in the process of assimilating its retirement arrangements.
As director of finance Eliane Aleixo Lustosa explains, the task has not been easy. “We want to be a multi-company pension plan and 10% of the fund is already managed for the companies previously part of the state-owned oil sector.”
Lustosa says Petros is to close its old DB fund – consisting of 91,000 members – before the end of the year to achieve this new status. “It was a constitutional issue that the plan should be equalised and we can’t open a new plan until the old one is sorted out. Petrobras has already said that it wants new employees to be part of a new DC plan and we have some actuarial points to clear up to determine the amount of money needed to close the plan.”
She adds that a significant issue underlying such change is that recent recruits to the management of Petros no longer follow the traditional Petrobras company route in. “We now have the economists in place and the people with experience in asset management to create a system of transparency and disciplined decision processes in order to work more professionally.
“For example, we have just finished centralising the fund’s custody with Itau and are presently involved in a process of renegotiating our fees with investment managers. Competition is now part of the game in Brazil,” she notes.
Petros plans to introduce three different DC funds for employees, but Lustosa says there is work still to be done in uncovering exactly what investments the existing fund actually holds.
“When I arrived here we didn’t know what we had in the portfolios, so we couldn’t always tell what was happening with our investments, which is not right because we are paying performance-related fees to managers!”
She says the first step was to get the fund’s stock market investments in order and turn non-liquid securities into liquid ones.
“We then decided to index a part of our assets and for diversification have portions in fixed-income, shares and the remainder in real-estate. What we are trying do is have an 80% minimum of our shares indexed and make some small bets on top of this. We want to treat the stock market as an asset class and just either be in or out.”
While fixed-income investment is run in house, the fund works with 29 asset managers using a structure based on a fund of funds arrangement to manage its other assets. “We have an arrangement where we can change from one fund to another without being penalised,” Lustosa says.
The next issue Petros looked at was risk, she notes. “I have an actuarial benchmark to meet and I want the least amount of risk, so we are reviewing all our contracts and fixing the right benchmarks, going through the contracts for control of companies etc.”
The process, Lustosa says, will also involve taking a more executive role in company boards, as well as introducing elements of corporate governance.
“Also, with interest rates coming down in Brazil, the fact that we are a very big fund means we just have to be more skilled in what we do to ensure we don’t suffer from adverse market movements. When you are looking after diverse interests in a DC plan you have to care for this in the best possible way.”