Emilia Bunea: "We have to be flexible in order to handle the unprecedented volatility in the markets"

The consolidation process on the mandatory pension market will continue this year, however the outlook is far more uncertain now then it was last year, according to Emilia Bunea, general manager of the ING Pension Fund.

"I was expecting 2-3 mergers this year, but given the fact that the values of any such transactions would be well below prices discussed in 2008, on one hand, potential sellers will be under a bigger pressure to sell, and on the other hand, potential buyers will be less tempted to buy", estimates Mrs. Bunea.

She also said, that, in her opinion, consolidation of the market will first of all improve the players" efficiency (fixed costs are distributed across a greater revenue base), but it is also true that it will have a positive influence on the overall efficiency of the system, as a player with a larger portfolio can afford to invest more in improving the management of its investments and of its account operations.

2008 was a very good year for the privately managed pension system, as the pension funds entered the market while it was at a very low point, which has allowed the funds to grow from the beginning, when compared to those in the neighboring countries. "In Poland, for instance, the privately managed pension funds entered the market a few years ago, and thus their yield was affected in 2009", said Mrs. Emilia Bunea.

In Romania, the pension funds entered the market in the beginning of May, and in the May-September 2008 period the market had an average performance, according to Mrs. Bunea. However, the month of September was marked by a higher volatility compared to other months, which has caused pension fund managers to revise their forecasts, Mrs. Bunea said. She also added: "They have started focusing their strategies on the short term, by trying to pursue the opportunities which appear". The investments in the pension system are long term investments, a fact which will compensate any possible losses with periods of growth".

"Our strategy for 2009 is to remain flexible in order to be able to handle the unprecedented volatility of the financial markets", Emilia Bunea said. Caution is the guiding principle, but this does not mean that we won"t be looking for the best deals if the risk level is relatively low", Mrs. Bunea further said.

One of our priorities is the continued dialogue and permanent consultation with the authorities: "We appreciate the intention of the Commission for the Supervision of Private Pension Funds (CSSPP) of allowing a pension administrator to manage several pension funds. Thus, they can create several risk profiles, based on the age of participants, because they can then afford to take on larger risk as a counterparty with better yields in the case of funds with subscribers aged below the average of pension fund investors".

Starting with the collection of pension funds in March 2009, the percent of funds which will begin being transferred from the state social security budget towards the private mandatory pension funds (Second Pillar) will increase by 0,5 up to 2,5% of the gross income of every participant in the system. Emilia Bunea estimates that at any rate, the 2,5% as provisioned by the law for the year 2009, and which is set to slowly increase to 6% in 8 years (of the 27,5% total social security contributions) is not enough to guarantee a decent pension. Mrs. Bunea feels that economic circumstances will not significantly impact the level of contributions to the pension funds in 2009, but she estimates that volatility is still too big for forecasts.

When it comes to the investments made by the Fund, it can be noted that, together with the exemptions which were approved by the Commission for the Supervision of Private Pension Funds (CSSPP) which allow fund managers to invest more of their available resources in safer instruments, the combined weight of financial instruments which have the largest exposure to the financial crisis has been reduced in favor of safer investments. Compared with September, on December 31 2008, ING Pension Fund"s bank deposits grew from 9,4% to 13,2%, and those in traded corporate bonds grew from 20,4% to 25,7%. In turn, the weight of shares in the overall portfolio has decreased from 4,7% to 2,4%, and that of state bonds from 65,8% to 58,4%.

Emilia Bunea has also said that on December 31st 2008, 74,4% percent of the fund"s investments were made in Romania, as against just 25,6% of its investments made in the European Union. Mrs. Bunea explained: "Investments abroad consist of securities issued in Romanian currency, to avoid currency exchange risk. This does not mean however that we will follow this strategy forever".

ING Pension Fund last year had more than 1,3 million participants. It held 38,7% of the total assets held by Second Pension Pillar funds, with a nominal value of over 831 million lei, according to CSSPP.