Romania’s financial supervisory authority (AFS) has announced it intends to review the regulations for private pension funds to increase their direct investment in the real economy, primarily via listed equities and corporate bonds.
According to the authority, the second and third-pillar fund investments in Bucharest Stock Exchange (BSE) listed companies totalled RON2.73bn (€617m).
The funds are large shareholders in the recent major state-owned company IPOs on the BSE, with 20.6% in nuclear power plant Nuclearelectrica, 22.8% in natural gas producer Romgaz and 18.6% in electricity distributor Electrica, as well as holding significant stakes in other strategically important companies.
Mihai Bobocea, adviser to the board of the Romanian Pension Funds’ Association (APAPR), added that, according to the association’s estimates, pension funds now account for 10% of the BSE’s trading volume.
Bobocea told IPE the association had been discussing potential changes with the AFS for some months.
These include reviewing the risk coefficients of the asset classes pension funds can currently invest in.
“This would ultimately lead to more direct investment in stock,” he said.
For example, while the limits state that funds can invest between 0% and 70% in government bonds, in practice, the numerous valuations force medium-risk funds into investing 60-65% into state securities.
The APAPR has also proposed the possibility of buying and trading corporate bonds, currently restricted to “regulated stock markets”, on the OTC market, and allowing interest rate risk hedging and other uses of derivatives.
“The current legislation is restrictive and only allows for some forex hedges,” said Bobocea.
The AFS’s announcement follows on from prime minister Victor Ponta’s statements to the Romanian press in July that appeared to rule out either a Hungarian-style nationalisation of the second-pillar funds or a Polish-style expropriation of their government bond assets.
These spectres were raised last year following rumours the government intended to review the second pillar’s performance with the IMF.
Ponta has since stated that he wanted to find, along with the European Commission and IMF, a solution enabling the funds to expand their investments beyond government bonds in ways that would benefit the real economy.
He told the Romanian financial weekly Capital that while the Hungarian solution produced good results in the short term, in the medium term, it would prove a mistake.