Voluntary Pension Funds Sector in Serbia
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Supervision of Voluntary Pension Fund Management Companies VOLUNTARY PENSION FUNDS SECTOR IN SERBIA Third Quarter Report 2008 November 2008 Supervision of Voluntary Pension Fund Management Companies CONTENTS 1. INTRODUCTION......................................................................................................... 3 2. MANAGEMENT COMPANIES ................................................................................... 4 Market participants................................................................................................... 4 Ownership structure................................................................................................. 5 Organizational network ........................................................................................... 6 Fees charged by management companies ............................................................ 7 Transaction costs..................................................................................................... 7 3. OPERATIONS OF VOLUNTARY PENSION FUNDS............................................ 8 Net assets of voluntary pension funds .................................................................. 8 Composition of assets of voluntary pension funds.............................................. 9 Stock exchange trading by pension funds ..........................................................10 Number and structure of users of VPF services .................................................11 Contribution payments, disbursements and transfers among funds...............17 Values of investment units and returns of funds................................................18 4. REGIONAL PERSPECTIVE.....................................................................................20 5. CONCLUSION ..........................................................................................................21 NATIONAL BANK OF SERBIA 2 Supervision of Voluntary Pension Fund Management Companies 1. INTRODUCTION In Q3 2008, nine voluntary pension fund management companies managed eight voluntary pension funds in Serbia’s VPF market. All market participants displayed notable interest in further development of the market. Voluntary pension fund HYPO received its first contribution payments, while payments to other funds went up, primarily on account of new entrants to the pension scheme. Although total contribution payments went up, the increase in the number of members making individual contribution payments was not significant because of Serbia’s still relatively low standard of living, inflation, lower-than-expected returns on account of negative trends in the capital market and the costs for fund members in the form of fees on contribution payment and management fees. As in Q2 returns were low and fees were high, third-quarter growth in net fund assets was lower than total payments made in that quarter. From 30 June until 30 September, the blue-chip index of the Belgrade Stock Exchange, Belex15, lost 44% of its value, approaching the psychological floor of RSD 1,000 towards late Q3. Management companies’ investment policies were conservative throughout the quarter. Hence, investment in shares came to just 11.4%, well below the maximum allowed (60% of fund’s assets). Most of such shares were included on the Belgrade Stock Exchange’s A List (Tigar, Sojaprotein and Energoprojekt holding), but their prices slid during Q3 to hit annual lows in late September. In Q3, the A List also came to include the shares of Metals banka in which funds invested a total of 0.03% of their assets. The spillover of the global financial crisis into the domestic capital market did not lead to a downturn in property prices. Even if there had been a decline, its effects would not have been important as only 1.7% of funds’ assets were invested in property at end-Q3. If, however, companies decided to invest 15% of funds’ assets in property (which is the legally prescribed maximum), the impact would be much stronger. NATIONAL BANK OF SERBIA 3 Supervision of Voluntary Pension Fund Management Companies 2. MANAGEMENT COMPANIES Market participants In Q3, nine management companies managed the assets of eight voluntary pension funds, four custody banks, 95 private individuals and 5 agent banks in Serbia’s VPF market. In the quarter earlier, two new voluntary pension fund management companies were set up: SOCIETE GENERALE PENZIJE a.d. Beograd and VPF management company HYPO a.d. Beograd. VPF management company SOCIETE GENERALE PENZIJE a.d. Beograd is the first such company to set up two voluntary pension funds – Societe Generale Štednja and Societe Generale Ekvilibrio. The two funds will differ primarily in the level of conservativeness of their respective investment policies.1 In Q3, the above funds did not yet begin collecting contributions, while the voluntary pension fund HYPO published its first investment unit value on 4 August 2008. With the start of operations of the voluntary pension fund HYPO, Erste Bank Srbija a.d. Novi Sad began operating as the custody bank for this fund. The number of banks providing custody services to voluntary pension funds thus increased to four. In addition to maintaining fund accounts, banks also have an important control function. Increased competition in the custody banks market would, therefore, act to improve service quality, thereby enhancing the security of the voluntary pension funds system. Fund management companies currently buy and sell securities through 15 broker companies (compared to 12 at end-Q2). 1 Societe Generale Štednjа targets more conservative investors and Societe Generale Ekvilibrio moderately conservative investors. NATIONAL BANK OF SERBIA 4 Supervision of Voluntary Pension Fund Management Companies NATIONAL BANK OF SERBIA Societe Generale Banka Srbija Dunav DDOR Penzija plus Komercijalna Central banka Securities Garant Depository Hypo Erste Bank Brokers Custody banks Custody Srbija Raiffeisen NLB Nova penzija Future Stock Triglav Exchange Unicredit Bank Srbija Delta Generali Securities Commission Ownership structure Insurance companies, banks and pension funds are the qualifying owners of all management companies operating in Serbia. Table 1 below gives a detailed overview of the ownership structure of management companies, classified by founder’s activity. Table 1: Ownerships structure by founder’s activity Qualifying owner Management company Name Core activity Delta Generali, Beograd Delta Generali Osiguranje, Beograd Insurance Raiffeisen Future Raiffeisen Bank, Beograd Bank Garant penzijsko drustvo Skupina prva, Ljubljana Insurance DDOR Penzija plus DDOR, Novi Sad Insurance Dunav Dunav osiguranje, Beograd Insurance Continental banka, Novi Sad Bank NLB LHB banka, Beograd, Bank NLB Nova penzija Nova Ljubljanska banka, Ljubljana Bank Skupna pokojinska družba, Ljubljana Pension fund Zavarovalnica Triglav, Ljubljana Insurance Triglav penzija Triglav, družba za upravljanje, Ljubljana Pension fund Societe Generale Banka Srbija, Beograd Bank Societe Generale Penzije SOGECAP, Societe anonyme d’assurance Insurance sur la vie et de capitalisation, Pariz HYPO Hypo Alpe-Adria-Bank, Beograd Bank NATIONAL BANK OF SERBIA 5 Supervision of Voluntary Pension Fund Management Companies Organizational network One of the two companies granted the operating license in June began its operations in Q3. As a result, the organizational network now includes 27 business units, branches and branch offices, most of which belong to a single management company. For the time being, most companies have head offices only. On the other hand, four management companies engaged banks as their agents, thereby indirectly expanding their network. At end-Q3 2008, four banks2 engaged by four management companies provided agent services. As founders of the two newly established companies, the banks Societe Generale and Hypo AlpeAdria will probably act as their agents, which is likely to increase the significance of agency by banks. Moreover, in Q3 the National Bank of Serbia issued additional 10 licenses to private individuals to engage in the dissemination of information on voluntary pension funds. Of 173 persons holding the above license, 95 have already been hired. Total employment in management companies came to 213, with the majority of employees engaged in sales and marketing activities. Total assets of all funds per employee increased steadily to reach around RSD 18.7 billion at end-Q3 2008. Table 2: Total assets per employee at end-quarter in RSD mln Q4 2007 Q1 2008 Q2 2008 Q3 2008 15.6 15.9 18.5 18.7 2 NLB LHB banka Beograd a.d. Beograd, NLB Continental banka a.d. Novi Sad, Raiffeisen banka a.d. Beograd and Volksbank a.d. Beograd. NATIONAL BANK OF SERBIA 6 Supervision of Voluntary Pension Fund Management Companies Fees charged by management companies As market competition Fees paid by fund members include: strengthened, contribution payment fees • fee on contribution payment (up to declined. And though regulations set the 3% of the payment) maximum fee level at 3% of the • fund management fee (up to 2% of the fund’s assets value, per annum) payment value, the average fee charged • account transfer fee (based on the by management companies in Q3 2008 actual costs of transfer). was 2.5%. The level of fees charged by a management company must be published The fund management fee may in the prospectus and on the equal no more than 2% p.a. of the management company’s website. annual value of the fund’s assets. This fee is calculated and deducted from the