As the bulk of the Greek pension system was mired in mismanagement and overregulation, the country’s incumbent telecoms operator, OTE, has stood out as a beacon of success with a cumulative return since the OTE pension fund started investing in 2002 of 26.37% with returns of 10% in 2003, last year and the year to date.
When the second stage of the privatisation of OTE was carried out, bringing the state’s share in the company to below 50%, the government had to make a payment to clear the deficit of the fund. A special law passed in 1999 established EDEKT-OTE to manage the special fund.
The question then, according to Nicholas Tessaromatis, CIO at EDEKT-OTE, the fund management arm of the OTE pension fund, was: “So the government could plug the deficit of the existing first pillar fund or use it to create a new fund. The government decided to create a new fund and establish a fund management unit to manage it.”
He adds: “The government saw this as an opportunity potentially to
create something more modern in pension funds without tackling the main thing. In this way it could see what structures would be needed in a liberalised system.”
EDEKT-OTE was allowed to create its own investment guidelines in accordance with the guidelines contained in the law. The strategy of the fund is based on a split of 40% in bonds and60% in equities and 60% in foreign investments and 40% in domestic. One of the only limits is that no more than 20% of the fund may be managed in-house. “Improving returns and diversifying risk are key,” says Tessaromatis.
After pursuing mainly balanced management the fund is now
moving to a core satellite approach. State Street has been hired to
manage the equity portion and Deutsche AM and Credit Agricole have been appointed to manage the bond portion. The equities part of the core is a non-Greek world fund with 50% in Europe, 40% in the US and 10% in Japan.
“The core-satellite system is more transparent,” says Tessaromatis. “We pay less fees for more efficient portfolio management. And we need to be more active by taking more control of our members’ money.”
EDEKT-OTE also provides the infrastructure to find and select managers, monitor the managers and the investments, and for performance evaluation. “If pension funds had a few companies like ours to chose from the transition to a more liberal environment in terms of money management would be that much easier,” says Tessaromatis. “What is missing is independent
consultants like Mercer.”
So EDEKT-OTE was set up in 2001 and received the cash amount towards the end of the year. With the fund now standing at E660m compared with E528m in 2002, it seems as though the pilot scheme has helped to demonstrate the benefits of modern asset management to the powers that be in Greece.