A start-up pensions provider has claimed it will revitalise the Latvian fund industry with low-cost second-pillar products.
INDEXO, which began operations at the start of July, said it was the first pensions provider in the country to offer passively-managed pension plans.
Toms Kreicbergs, CEO, INDEXO, told IPE: “Latvian pension plans have long had some of the highest fees throughout Europe, while delivering disappointing returns. We wanted to create a low-cost, passively managed alternative.”
He added: “The average management fee for the second-pillar market over the past five years has been 1.5%, but we are charging 0.75%. While the market has grown substantially, percentage costs have remained the same, so existing providers are making excess profits.”
The independent company raised €2.3m in share capital from more than 30 Latvian CEOs and entrepreneurs earlier this year, with Kreicbergs saying the firm had to turn down some investors due to high demand. INDEXO attracted €13.5m in assets under management in its first month of operation.
It is the eighth provider in the country’s €3bn second-pillar system. The majority of other providers are subsidiaries of banks.
In Latvia, all workers born after 1 July 1971 pay 6% of salary into a second-pillar scheme, with the money forwarded to pension plans by the government. Participants can choose their asset manager and pension plan.
INDEXO’s first offering is INDEXO Izaugsme, a passively managed plan investing in a set allocation of low-cost index funds. Its target allocation to equities is 47% – just under the maximum 50% permitted under Latvian rules.
Kreicbergs said: “It will be buy and hold all the way, which cuts down transaction charges. This strategy hasn’t been used in Latvia before.”
INDEXO primarily relies on BlackRock’s index fund range to build its portfolios.
Besides the low fee structure associated with passive management, INDEXO also expected to incur lower costs than its competitors because of its relatively small financial team. Percentage fees would be reduced even further as INDEXO grew its assets under management, the company said.
Kreicbergs said INDEXO hoped to acquire a 20% market share over the next five to 10 years. “Our business plan is to achieve profitability within a few years, and we are very much on track,” he said.