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Central & Eastern Europe: Another odd one out

Romania wants to strengthen its second pillar, according to Barbara Ottawa, bucking a regional trend away from funded pensions

A shockwave ripped through the Romanian pensions industry in 2013 when rumours of a review of the system put large insurers with business subsidiaries in the country on red alert.

Local media had been leaked the next ‘letter of intent’ the Romanian government wanted to present to the International Monetary Fund (IMF). Referring to an “analysis of the performance of the second pillar”, it triggered fears of a possible re-allocation of pension fund assets to the first pillar, similar to steps taken in Hungary and Poland.

However, Liviu Voinea, minister in charge for the budget, was quick to calm fears and stamp out the rumours. He told the Romanian press that there were “no plans to nationalise assets from the Romanian second pillar”. He confirmed government plans to raise the contribution level to this part of the pension system from 4% to 4.5% from 2014. By 2016 the contribution is set to increase to 6%.

The Romanian pension fund association APAPR says it will support the government in the analysis helping it to “obtain a correct evaluation of the private pension system in Romania”.

“We express our belief that an objective and realistic analysis will reach positive conclusions on the results and merits of the second pillar,” Catalin Ciocan, the association’s executive secretary, told IPE.

The Romanian capital market is developing apace and has attracted new international as well as domestic investors, says Greg Konieczny, executive vice president at Franklin Templeton Investment Management and fund manager of Fondul Proprietatea, the RON14.88bn (€3.3bn) property compensation fund.

Only two years ago, his colleague David Smart, managing director responsible for sovereign funds and institutions, called the Romanian stock market “ridiculously underrepresented”.

However, in 2013 two major IPOs have increased the market capitalisation of the Bucharest stock exchange to 11% of GDP. “It is a huge step in the right direction,” says Smart.

The two companies that are now listed are the nuclear power producer Nuclearelectrica and gas company Romgaz, which was simultaneously listed in London.

According to Konieczny both IPO’s generated major interest among foreign and domestic investors and were several times oversubscribed. Fondul Proprietatea itself was also able to attract “more than €1bn from foreign investors”, the fund manager pointed out. Almost 60% of the fund’s shares are now owned by foreign investors with domestic institutions holding 9% and most of the rest (another 29%) belonging to foreign and domestic private individuals.

A more liquid Romanian stock market might also help the remaining eight second-pillar pension funds. According to the Romanian supervisory authority CSSPP, “no drastic changes have been considered in the asset allocation as pension funds continue to be conservative and more diversification of their portfolios is encouraged”.

Indeed, according to the statistics compiled by the pensions supervisor, the share of government bonds, both Romanian as well as those from EU or EEA member states, in the pension funds’ portfolios has increased since 2008 from 60% to almost 77%.

As a reaction to the financial crisis, the Romanian government extended the maximum government bond exposure for pension funds from 70% to 100% until June 2014. Listed equities only make up 12.4% of the portfolios but their share has increased considerably from 2008 when the funds started off with a 1.5% exposure.

However, these figures are not fully comparable as the Romanian second pillar has heavily consolidated since it started, bringing the number of funds from 14 to eight.  But a spokesman for the CSSPP told IPE the supervisor thinks “the current structure of the second-pillar market will remain unchanged in the medium term”.

Since inception, the pension funds have managed to generate an annualised performance of 11.7%, the APAPR notes in a statement. Between October 2012 and September 2013 the funds reported an average return of 11.6%.


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