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New EU countries need “prudent person” – ADAM

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EUROPE – New European Union countries in central and eastern Europe need to lift investment restrictions and implement the “prudent person principle”, Allianz Dresdner Asset Management says.

ADAM told a briefing that “restrictive” investment regulations will limit the performance of pension assets in the countries that are to join the EU on May 1.

The firm, part of insurer Allianz, said “it would be advantageous if the acceding countries were to switch to the prudent person principle,” to facilitate efficient portfolio diversification.

The term refers to investments that a prudent person seeking reasonable income and preservation of capital might buy for their own investment. The principle was included, after some wrangling, in the new European occupational pensions directive, the Institutions for Occupational Retirement Provision.

Dorothee Fleischer, ADAM’s head of pensions research, said the prudent person provisions in the directive will not have an impact on CEE schemes as they are not directly sponsored by employers.

“The question is to which pension scheme does it apply,” she said. “The mandatory funds probably do not qualify as occupational.” And she added that the issue was “not very high on the agenda at Brussels right now”.

ADAM estimates that the target of 230 billion euros of assets will not be met on current projections. It said the CEE countries have “defensive” investment policies and large bond allocations.

For example, Poland that a 40% cap on equities, with actual investment at 32%. The Czech Republic has no restrictions on foreign investment, with actual investment abroad is 4.6%.

ADAM has a total 1.2 billion euros in pension assets under management in CEE countries. “It’s not a big business but it is a fast-growing one,” said board member Johann Goldbrunner. He added that management fees are on a par with elsewhere in Europe.

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