TURKEY - Turkey's TRY8.5bn (€3.93bn) pension industry could see an expanded range of investment vehicles in the near future in a bid to widen diversification and returns potential, according to the Turkish regulator.

Selamet Yazıcı, head of department at the prime minister's directorate of insurance, said the new investment vehicles are likely to include private equity and real estate funds.

"Right now, Turkish pension insurance companies are very conservative in their investments. This will change and the proportion of stocks [held] will increase. But we will also have to introduce real estate and private equity to diversify returns. And the demand for new investment vehicles should come from the sector," Yazıcı told IPE.

Turkish pension funds invest heavily in Turkish government bonds, as they made up 69.51% of an average portfolio in August. The remaining investments of the average pensions investment portfolio are made of equities (10.37% of assets), alongside reverse repos (14.61%), overseas equities (0.39%), money market investments (0.01%) and other investments (5.11%).

Turkish pension funds are expected to record strong asset growth in 2009, although this is unlikely to be as impressive as in 2008, suggested Yazıcı. In 2008 the asset volume of Turkish pension funds increased by 41%, while total returns stood at 9.5%.

"The main reason for the growth was the conservative composition of portfolios and low equity exposure, which at the end of last year dropped to 7%," he said. "Government bonds yielded particularly sound returns. Yet returns from pension fund investments will diminish slightly this year, although they will still be relatively high because of high interest rates and the notable exposure to bonds," added Yazıcı.

The Turkish Treasury is aiming to increase its private pension assets to GDP ratio to up to 10% over the next 15 years. That ratio currently stands at 1.7%, one of the lowest among OECD countries, while the corresponding figure in Italy is 3.4%, reaching 10.4% in Mexico and Portugal 12.2% according to the OECD.

"Private pension saving in Turkey is still too limited in international comparison. This ratio of 1.7%, which is very small for a country like Turkey, is largely because the system was launched only six years ago," Yazıcı said.

The Turkish private pensions sector, operating largely as a third pillar voluntary system, consists of 12 companies managing assets worth TRY8.5bn for 1.93 million pension savers. Yazıcı said he expects the sector to consist of two million participants and TRY9bn in assets by the end of this year.

"By 2023, we will be talking about six million contributing members and an asset volume of TRY150bn. For us to reach these targets, the system needs to grow by some 8% annually," he said.