Download Sofia, Bulgaria, October 13, 2006 Milen Markov Chairman of

BULGARIAN ASSOCIATION OF
SUPPLEMENTARY PENSION SECURITY
COMPANIES
THE NEED AND POSSIBILITY OF INTRODUCTION OF
MULTIFUND SYSTEM IN THE SUPPLEMENTARY
RETIREMENT PROVISION ACTIVITY IN BULGARIA
Milen Markov
Chairman of Investments and Capital Markets Committee of BASPSC
Conference “Development of Supplementary Retirement Provision in EU and the
challenges for the joining countries”
Sofia, Bulgaria, October 13, 2006
1
І. THE NEED OF INTRODUCTION OF MULTIFUND
SYSTEM IN THE SUPPLEMENTARY PENSION
PROVISION
ІІ. POSSIBLE METHODS OF APPROACH AND
NECESSARY ACTIONS FOR THE INTRODUCTION OF
MULTIFUND SYSTEM IN BULGARIA
2
І. THE NEED OF INTRODUCTION OF MULTIFUND SYSTEM IN THE
SUPPLEMENTARY PENSION PROVISION
Fundamental reasons for introduction of a multifund system in countries with
Pension Systems based on fully funded principal. (Chile, Peru, Mexico):
1. Achieving higher profitability through investing in portfolios with
predominantly variable income assets and higher risk;
HIGHER PROFITABILITY = HIGHER PENSION
HIGHER PROFITABILITY = HIGHER RISK
2. Conforming the life cycle of the insured person with the risk of change of
the indexes of the capital markets;
3. Granting the insured persons the right to determine the level of risk of the
portfolio in which they are insured;
4. Clear definition of the different investment portfolio’s profiles;
3
Motives for the introduction of the multifund system in
Bulgaria
1. Development of the capital markets
- high growth of the “Bulgarian Stock Exchange-Sofia
capitalization;
- development of the Corporate bonds market
2. Successful start and development of the Collective investment
schemes– Investment Companies and Unit Trusts
3. Liberalization of the investment limitations
4. Achieving a mature stage in the development of the
Supplementary Pension Provision System – successful
implementation of a daily evaluation of the assets of the
pension funds, effective control by the Finance Supervision
Commission, clear rules for investment in the capital
markets of countries members and non members of the EU.
4
Development of the capital market in Bulgaria
Number of shares and bonds traded on “BSE-Sofia”
2002
2006 *
Shares
328
341
Bonds
12
62
Market capitalization of “BSE-Sofia”
2000
2001
2002
2003
2004
2005
2006*
(BGN billions)
1,286
1,104
1,375
2,722
4,033
8,434
9,914
(EUR billions)
0,658
0,564
0,703
1,392
2,062
4,312
5,069
More than 9 time increase
Market capitalization / Gross domestic product
2000
2001
2002
2003
2004
2005
2006*
4,81%
3,72%
4,25%
7,88%
10,54%
20,11%
21,13%
5
Successful start and development of the
Collective investment schemes

Number of local Investment Companies and Unit Trusts
Investment Companies
Unit Trusts

2000
2002
2004
2005
2006 *
3
4
8
10
11
-
-
-
9
25
Funds managed by local Investment Companies and Unit Trusts as of
30.06.2006
- Investment Companies - 92 147 BGN thousands. (47 114 EUR thousands)
- Unit Trusts - 72 474 BGN thousands. (37 055 EUR thousands)

Foreign Collective investment schemes offered in Bulgaria as of 30.06.2006 – 4
Management Companies offer a total of 37 different Unit Trusts, using the
branch network of 4 banks.
6
Aggregated structure of the assets of the Collective investment schemes as of
30.06.2006
Assets (BGN)
IC total
Value (BGN)
UT total
Share
Value (BGN)
CIS total
Share
Value (BGN)
Share
Cash, including
20 792 923
22,56%
24 768 623
34,18%
45 561 546
27,68%
Bank deposits
16 707 535
18,13%
21 123 996
29,15%
37 831 531
22,98%
Shares
31 412 032
34,09%
25 069 895
34,59%
56 481 927
34,31%
Corporate bonds
22 367 979
24,27%
15 054 130
20,79%
37 422 109
22,73%
Mortgage bonds
5 074 070
5,51%
2 013 036
2,78%
7 087 106
4,31%
Municipal bonds
783 451
0,85%
438 226
0,60%
1 221 677
0,74%
Compensatory notes
181010
0,20%
0
0,00%
181010
0,11%
6 600 574
7,16%
915 500
1,26%
7 516 074
4,57%
581 292
0,63%
0
0,00%
581 292
0,35%
Foreign securities
2 116 461
2,30%
1 023 062
1,41%
3 139 523
1,91%
Receivables
2 049 647
2,22%
3 094 974
4,27%
5 144 621
3,13%
Non financial assets
2 049 647
2,22%
3 094 974
4,27%
5 144 621
3,13%
188 071
0,20%
96 692
0,13%
284 763
0,17%
92 147 510
100%
72 474 142
100%
164 621 652
100%
1 996 036
2,17%
749 698
1,03%
2 745 734
1,67%
Government bonds
Euro bonds
Others
Total assets
Profit
7
Liberalization of investment limitations
Limitations for the
Mandatory Pension Funds
Investment instrument
Up to 24.02. 2006
After
24.02.2006
Limitations for the
Voluntary Pension Funds
Up to 24.02. 2006
After
24.02.2006
min.
%
max. %
max. %
min.
%
max. %
max. %
50
100
100
30
100
100
10
20
10
100
-
5
-
10
15
-
100
20
25
20
100
-
5
-
10
Municipal bonds
10
15
10
100
Bank deposits
25
25
25
100
Mortgage bonds
30
30
30
100
5
5
10
10
2,5
*
2,5
*
15
**
20
**
Government bonds
Shares admitted to trading on a
regulated market
Shares of Special Investment Purpose
Companies
Stocks and/or shares of collective
schemes
Corporate bonds on a regulated market
Secured Corporate bonds
Investment Estate
Derivatives of securities
Investments in foreign securities
8
ІІ. POSSIBLE METHODS OF APPROACH AND
NECESSARY ACTIONS FOR THE INTRODUCTION OF
MULTIFUND SYSTEM IN BULGARIA
Introduction of multifunds only in the
Supplementary Voluntary Pension Funds
 Limitation of the number and types of risk
portfolios to 3 different levels of risk, with
respect to the share of variable income
securities
- Conservative up to 20 %
- Standard up to 60 %
- Aggressive up to 80 %
9
Portfolio composition of VPF as of 30.06.2006
BGN
thousand
EUR
thousand
1
Securities issued or guaranteed by the
Government
160 317
81 969
38,64
2
Securities admitted to trading on a
regulated market
109 281
55 875
26,34
№
Investment instruments
%
2.1
Shares
55 707
28 483
13,43
2.2
Corporate bonds
53 574
27 392
12,91
3
Municipal bonds
1 787
914
0,44
4
Bank deposits
96 098
49 134
23,16
5
Mortgage bonds
34 695
17 739
8,36
6
Derivatives of securities
0
0
0,00
7
Investment Estate
7 047
3 603
1,70
8
Foreign investments
5 634
2 880
1,36
414 858
212 114
100,00
Total investments
10
NECESSARY ACTIONS FOR THE INTRODUCTION OF
A MULTIFUND SYSTEM IN BULGARIA
1. Changes in the Normative Framework –
common initiative of FSC and BASPSC
2. The Pension companies should develop:
- Investment strategy for the portfolios with
different risk levels
- Fund rules
3. Licensing of every investment scheme
11
MAIN ISSUES , WHICH SHOULD BE SLOVED BY THE
CHANGES OF THE NORMATIVE FRAMEWORK
1. What should be the legal form of the mutlifunds:
– one legal person with separate portfolios with
different level of risk
– each portfolio should be a separate legal person
2. Should the law include maximum and minimum
quantitative limitations for the different portfolios
or should this be defined in the Fund rules.
3. Should there be limitations of the number of funds
managed by a single Pension company
12
MAIN ISSUES , WHICH SHOULD BE SLOVED BY THE
CHANGES OF THE NORMATIVE FRAMWORK
4. Status of the already existing funds – determining
their risk profile. Determining the type of fund for
people who have not made a choice and for
unpersonified contributions
5. The right to change funds managed by a single
pensions company – taxes and how often it can be
done
6. Binding the right to participate in a higher risk fund
to the life cycle of a person
7. The amount of taxes collected by the different funds
8.Method of the different portfolio’s asset valuation and
calculation of the value of units
13
POSSIBLE OBSTACLES AND PROBLEMS DURING
THE INTRODUCTION OF THE MULTI FUND SYSTEM
1.
Not enough interest and difficulties in choosing a
specific risk portfolio by the insured persons
2.
Not enough customers for the formation of a
portfolio of a particular kind and difficulties with its
effective management
3. Not enough actively traded shares on BSE-Sofia
4. The Pension Companies and FSC having
difficulties with the administration of a larger
number of funds
14
THANK YOU FOR YOUR ATTENTION
QUESTIONS ?
15