Operating in a frontier market environment
The Raiffeisen Mandatory Pension Fund began operating at around the same time as the second pillar pension system was established in Croatia in 2002. In the past three years, the pension scheme has had a steady performance, generating an average annual return of 8.17% from April 2002 to June 2005, and was voted the best performing mandatory pension fund in Croatia. Raiffeisen believes that its competitive advantage lies in its superior understanding of the domestic market. (Due to current legal restrictions, a minimum of 85% of the fund’s assets is invested in the domestic market.) The pension scheme is also present in the international markets and has developed trading and research activities with major international investment institutions.
Raiffeisen’s investment philosophy is based on absolute returns rather than beating a benchmark. To operate successfully and to provide its members with a positive real return with minimum drawdown risk, Raiffeisen has had to adapt its asset management philosophy to the undeveloped Croatian market and fight strong peer group competition. The scheme has also had to contend with the presence of relative guarantees, which are embedded in the Croatian second pillar pension system. It is the first Croatian pension scheme to have been granted a licence to use derivatives, which it does with the aim of shaping a better risk/return profile for the fund.
From the beginning, Raiffeisen adopted a standard organisational structure with front, middle and back offices and established risk (VAR), performance measurement and attribution systems. The pension scheme constructed its own benchmark indices in order to track Croatian asset classes. The pension scheme publishes its financial reports in daily newspapers (according to IAS standards) and informs its members and the general public about every major issue regarding its fund performance (including rates of return, fund asset allocation and positions, and realised and unrealised gains and losses). It publishes its investment prospectus, including its fund investment policy, on an annual basis.
Raiffeisen prides itself on having highly developed and user-friendly services for its members. It offers its members a call centre, web portal with details of member accounts, e-mail and SMS reporting for every contribution paid, and regular postal reporting (such as personal account details or newsletter for members). But member services are not only dedicated to personal accounts issues. The scheme’s personnel are trained to answer general questions about pension reform, pension rights issues and about institutions involved in the reform. It regularly informs its members on major developments related to its performance and publishes its NAV daily on its website. The pension scheme also has a widespread network of advisers, who promote the idea of pension saving, in schools and universities across Croatia.