SPAIN - Spain's pensions reserve fund is set to put around 10% of its assets into equities, according to Economics Minister Pedro Solbes, though the final conditions for its proposed asset switch will only be agreed in a few months' time.

The Council of Ministers recently approved a bill which would allow the €40bn Fondo de Reserva de la Securidad Social to broaden its spread of investment by including equities. Unlike most other European pensions reserve funds, the Spanish fund only invests in government debt.

"The idea is for a percentage of the total… a relatively small percentage", Solbes said when asked about the reserve fund's proposed move into equities, in an interview yesterday with the Spanish radio station Cadena Ser. He went on to explain the percentage would be "in the region of 10% of the fund's total."

A spokeswoman for the Ministry of Work and Social Affairs has confirmed Solbes has proposed an allocation to shares at 10%.

"But the final conditions, percentage in equities etc, will be taken in a few months," she added, once agreements have been reached with trade unions and employers.

Whether the fund will be allowed to invest internationally will also be decided at that stage, she suggested.

At just 10%, the equities allocation would still be much lower than that of other European pensions reserve funds, but Igor Alonso, senior consultant at Hewitt Associates in Madrid said this is only the first step.

"If the result of these investments is very good and we don't have any problems, then we will increase this," he said. "It's a first step because the government is very cautious."

Trade unions and public opinion in Spain generally opposes risks being taken with the Fondo de Reserva, as it is seen as being very important for the future, he explained.

US research and adviser firm Aite Group said the bill to allow equities was another sign the country was loosening its strict and conservative investment regulations.

"The difficulty the reserve may face is Spain's relatively thin equity market," said Aite Group senior analyst, Phillip Silitschanu.

"The hope is that the equity allocation will not only be limited to the Spanish market, but will include OECD markets," he added.

Jose-Luise Masferrer, consultant at Buck Heissmann in Barcelona, also commented: "The first and main challenge - more than selecting asset managers to execute mandates and monitoring performance - is to design a reasonable investment policy which includes a suitable strategic asset allocation and style of investment."

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