A peek into the investment strategies of the Romanian pension funds
The Private Pensions Supervisory Commission (CSSPP) first published substantially detailed information on pension fund investments recently, revealing both the individual holdings, as well as exposure data on the issuers and maturities of investments made in fixed income instruments. Far from any surprise, the published statistics satisfies the curiosity of certain figures outside the system, revealing the pension funds' vision, as important institutional investors, on Romania's economic sectors, financial markets, inflation, as well as other matters regarding the macroeconomic outlook. Below are some conclusions derived from the published data:
Cash & deposits: with a share of about 7 - 8% in the private pension's fund portfolios, the deposits held by the funds are short term concentrated, under a month of maturity (the case of two thirds of the money market instruments), playing the role of "liquidity buffer" and waiting for more valuable opportunities rather than bank placement. Less than 10% of the pension funds' accounts with banks have a three months maturity, most likely the deposits formed in periods when interest rates were sufficiently attractive, due to lack of liquidity in the banking system.
Corporate bonds: the situation is completely different in this case, these being bonds purchased by the pensions funds mainly during 2008, the sell-side being mainly banks and European companies that were looking for financing opportunities other than the over-stressed inter-bank money market. Although the share of corporate bonds within the pension funds' portfolios has slightly diluted over the past 2 years, holdings remain about 10 - 11%. The attractive maturities for pensions funds were mainly long term ones (5 - 10 years), in which the funds have placed more than half of the allocated sums in this assets class. Next in the line of pension funds' interests were medium duration bonds (3 - 5 years), the least amounts being invested in "shorter" bonds, with maturities under three years.
Municipal bonds: in this case, the bonds are issued mainly by cities in Romania and the pension fund's holdings fully reflect the limited offer on this segment, as well as the significant risk that they bear in comparison with Government paper or other bonds. Munies make up for 1- 2% of pension funds' portfolios, all having maturity levels over five years, with an important share distributed to those reaching 20 years. Also important to outline is that even within this assets class pension funds have managed to geographically diversify their holdings by purchasing not only Romanian instruments, but also European ones.
Government bonds: this is the most significant assets class in the pension funds' portfolios, covering around two thirds of investments. Due to legislative restrictions, as well as the constraints related to investment performance benchmarking (in local currency), the funds have manifested a strong "home bias" effect, having 60 - 65% exposure on instruments issued by the Romanian Public Finances Ministry. Among these, the majority goes to 3 years long titles, the funds allocating equal proportions, around 20 - 25%, to 5 years and under-3 years bonds. Besides the fact that it reflects the limited supply of government bonds with longer maturities, but also rather unattractive market conditions for these instruments, the choice can be interpreted as a prudent vision on the inflation outlook. So, they rather actively manage the Government paper portfolio and avoid blocking too many funds in long securities, where the number of counter-parties interested in future purchases is significantly lower than the bank's appetite for longer instruments in this area. Traditionally, banks prefer short term securities, of under one year, being used as guarantees in order to obtain liquidity from central banks as Lombard-type lending and other financing facilities.
Listed shares: In this area, in which pension funds invest about 12-14% of their assets, stood the majority of disclosure-interested parties outside the system. Most of the issuers covered by the pension funds' investments are not a surprise, such as blue- chips, "local stars" of the Bucharest Stock Exchange, some of the few shares able to offer both attractive pension funds demand foundation, as well as adequate levels of volume and liquidity. Thus, pension funds mainly invested in shares of OMV-PETROM (1.2% out of the total assets), BRD Groupe Societe Generale (1.1%), Banca TRANSILVANIA (0.95%), TRANSGAZ (0.91%), TRANSELECTRICA (0.69%), SIF Moldova, Oltenia, Banat-Crisana and Transilvania (towards 0.45-0.6%) and ZENTIVA (0.4%). It's easy to notice the private funds' preferences for the financial sector, the energy (and the utilities, in general) and pharma.
Original data published by the CSSPP can be found here.
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