Supervision of Voluntary Pension Fund Management Companies VOLUNTARY PENSION FUNDS SECTOR IN SERBIA Fourth Quarter Report 2009 Supervision of Voluntary Pension Fund Management Companies CONTENTS 1. INTRODUCTION ...................................................................................................... 3 Key Developments Influencing VPF Operations .................................................. 3 Movements in Relevant Quarterly Indicators ....................................................... 3 2. MANAGEMENT COMPANIES ................................................................................. 7 Market Participants ................................................................................................ 7 Ownership Structure .............................................................................................. 7 Organisational Network ......................................................................................... 8 Fees Charged by Management Companies .......................................................... 8 Transaction Costs .................................................................................................. 9 3. VPF OPERATIONS ................................................................................................ 10 VPF Net Assets ..................................................................................................... 10 Composition of VPF Assets ................................................................................ 11 VPF Securities Trading ........................................................................................ 12 Number and Structure of VPF Users .................................................................. 13 Contribution Payments, Withdrawals and Transfers between Funds .............. 19 Investment Unit Values ........................................................................................ 20 4. RETURNS .............................................................................................................. 21 Relationship between Risk and Return ............................................................. 22 Return Paid into Members Individual Accounts ................................................ 24 5. CONCLUSION ....................................................................................................... 26 NATIONAL BANK OF SERBIA 2 Supervision of Voluntary Pension Fund Management Companies 1. INTRODUCTION Key Developments Influencing VPF Operations Chart 1: Movements in FONDex, net assets and key indicators since the start of VPFs operations 1.300 8.000 7.000 1.250 3 6.000 1.200 5.000 1.150 FONDex 4.000 1.100 3.000 1.050 Net Assets (RSD mln) 2.000 1 2 1.000 1.000 950 0 Nov Feb May Aug Oct Jan Apr Jul Oct Dec Mar May Jul Sep Nov 2006 2007 2007 2007 2007 2008 2008 2008 2008 2008 2009 2009 2009 2009 2009 3.300 BELEX15 1.825 350 95,7 RSD/EUR Exchange Rate 85,7 75,7 18,00% Key Policy Rate 13,50% 9,00% 1 – Transformation of three insurance companies into VPFs 2 – Period of the greatest withdrawal of funds 3 – Periods with highest amounts of fund transfers Movements in Relevant Quarterly Indicators The increase in CPI at end- CPI Q4 2009 was 6.6% in 6,8 6,6 comparison to the same period 6,6 last year. It decreased in both 6,4 6,2 October and December by 0.2% 5,9 6,0 from the preceding month and 5,8 rose by 5.2% and 6.6% in annual 5,6 terms in the two respective 5,4 5,2 months. November shows an 5,2 5,0 increase of 0.8% in CPI Oct Nov Dec compared to the previous month, NATIONAL BANK OF SERBIA 3 Supervision of Voluntary Pension Fund Management Companies and an annual increase of 5.9%. After growing in Q3 by BELEX15 nearly 45%, BELEX15, the blue 900 chip index of the BSE, declined 850 in Q4 2009 by almost 20% from 800 the previous quarter (from 750 825.97 to 663.77 points). The 700 turnover of shares on the BSE in the fourth quarter was 23 650 billion dinars, or over 250 600 OctNov Dec million per trading session. This increase in turnover of shares in relation to 4.2 billion dinars recorded in the third quarter was primarily a consequence of the December increase in turnover on the OTC market. Along with the fall in share prices on the stock exchange, the share of stocks in total assets fell from 8.5% to 7.2%, i.e. from 560 to 523 million dinars, mainly as a result of a decrease in share prices in funds’ portfolios. This trend, however, did not continue in the first quarter of 2010 which is characterized by an increase in BELEX15 and a decrease in turnover in comparison to end-2009. Belex sentiment1 first saw an increase in Q4, but subsequently decreased. Still, throughout the period from September to end- December 2009 it measured above 100 points, which points to a mild optimism among market participants. GDP fell by an estimated 2.9% in 2009 (against an increase of 5.4% in 2008) and industrial production declined by as much as 12.6%. After weakening RSD/EUR Exchange Rate substantially in January 2009, 97,0 the exchange rate stabilised at 96,5 93 dinars per one euro. 96,0 Compared to end-Q3, it 95,5 95,0 weakened by 3% against the 94,5 euro. The exchange rate was 94,0 96.57 dinars per euro at its 93,5 93,0 lowest and 93 dinars per euro at 92,5 its highest. The most affected OctNov Dec by exchange rate movements were government bonds, accounting for about 25% of total funds assets. 1Indicator aimed at identifying expectations of relevant market participants in the sense of developing movement trends on the BSE in the next month. Value below 100 means negative, while value above 100 means positive expectations for the participants. NATIONAL BANK OF SERBIA 4 Supervision of Voluntary Pension Fund Management Companies The NBS lowered its key Key Policy Rate policy rate from 12% to 11% in 11,5 October and further down to 11,0 10% in early November and 11,0 9.5% in late December. The 10,5 lowering of the key policy rate 10,0 10,0 induced changes in the level of 9,5 interest rates charged by 9,5 companies on term deposits and 9,0 transaction accounts. At end- Oct Nov Dec December 2009, term deposits accounted for 4.4% of total assets, whereas transaction accounts, decreasing by nearly 2 pp from September 2009, made up 15.5%. In early 2009, three-month treasury bills first appeared in the market as a new financial instrument rather important for VPFs. On average, these bills imply lower investment risk and offer higher interest income than earned on transaction accounts. Q4 saw thirteen issues of three-month T-bills at a discount rate ranging between 11.98% (first issue) and 10% (last issue in the quarter). Furthermore, there were fourteen issues of six-month treasury bills in the same period at a discount rate ranging between 12% and 10.19%. There was also a q-o-q increase in the share of treasury bills in total funds’ assets from 43.5% to 46.6%. As merely 1.1% of funds’ assets were invested in real estate at end-2009, a shock in the real estate market would not produce significant consequences for the VPF sector. At end-2009, VPF net assets rose by 8.73% and 54.9% relative to end-Q3 and y-o-y respectively. A rise in net assets came mainly in response to payments of pension contributions and a higher investment value. The return on FONDex FONDex relative to the previous quarter 1.270 rose by 1.74%. The value index 1.265 rose from 1246 to 1267. The 1.260 index increased mainly due to 1.255 interest revenue2 on treasury 1.250 bills and government bonds, 1.245 1.240 considering the high portion of 1.235 these securities in funds’ OctNov Dec 2 The decrease in the key policy rate also led to the decrease in treasury bills interest rates, but taking into consideration large portion of treasury bills (over 46%) in funds assets, their contribution to the growth of the index is still high NATIONAL BANK OF SERBIA 5 Supervision of Voluntary Pension Fund Management Companies portfolios. Decrease in share prices on the BSE had a negative impact on the index value. Also, a slight increase in the euro exchange rate against the dinar had an impact on the increase of the index (25% of the funds assets invested in bonds). Table 1: Movements in relevant quarterly indicators Q4 Q1 Q2 Q3 Q4 2008 2009 2009 2009 2009 CPI 3 8.6 9.4 8.3 7.3 6.6 EUR/RSD 88.60 94.78 93.44 93.01 95.89 Exchange Rate Key Policy Rate 17.75% 16.50% 13.00% 12% 9.5% BELEX15 565.18 380.83 569.27 825.97 663.77 FONDex 1,097.15 1,137.29 1,186.91 1,245.59 1,267.29 3 A rise in prices (in %) compared to the same period last year NATIONAL BANK OF SERBIA 6 Supervision of Voluntary Pension Fund Management Companies 2. MANAGEMENT COMPANIES Market Participants National Bank of Serbia Societe Generale banka Srbija Dunav DDOR Penzija Komercijalna plus Central banka Securities Depository Garant HYPO Erste Bank Brokers Custody banks Custody Srbija Nova penzija Soc. Gen. Stock Ekvilibrio Soc. Gen. Exchange Štednja Unicredit Bank Srbija Delta Raiffeisen Generali Future Triglav penzija Securities Commission The VPF market currently comprises nine companies that manage 10 VPFs, 4 custody banks, 122 natural persons and 5 agent banks. At present, VPF management companies buy and sell securities through 17 brokerage houses. Ownership Structure Insurance companies, banks and pension funds are qualified owners of all management companies. Table 2 below contains an overview of the ownership structure of management companies, classified by founder’s activity. Table 2: Ownership structure by founder’s activity Qualified owner Management company Name Core activity