07.05.2013

Investing the assets of pension funds in the fully funded pension insurance and the role of MAPAS

Pension funds are open investment funds and institutional investors which are under constant attention of the public in terms of the role of pension funds in the capital market in the country. From that point MAPAS considers that it is necessary to re- introduce the public with the regulation and the purposes and principles of pension funds that manage mandatory and voluntary pension funds and MAPAS role in this process .

Regulation of investments of pension funds is an integral part of any fully funded pension insurance. Regulation is set according to the level of development of pension reform, the level of development of the capital market and the level of development of asset managers. Overall, the regulation establishes the basic framework for the investment strategies of pension funds, through the definition of qualitative and quantitative criteria for classes of instruments, the publishers and the individual instruments. Based on the regulation, asset managers of pension funds, ie pension companies set their own internal investment criteria.

In addition, it must be noted that MAPAS has a double role in the investments of pension funds: as regulator that regulates investment through by -laws, and as supervisor which controls is the investment according the regulations and valuation of funds. In performing these roles, MAPAS cannot give any proposals for investment in a particular instrument or can prohibit investments in certain instruments if it is according the legal criteria.

The responsibility of the pension company is to invest the assets of pension funds according to the legislation in order to maximize the return of pension funds using the principle of a reasonable person. The principle of a reasonable person provides duty of care, responsibility and skills of the asset managers in the pension companies, as they would be used in investing of their own assets. In terms of the principles of investment should be taken into account by asset managers despite diversification of the portfolio and reliability of the instruments clearly are defined the responsibilities of asset managers to minimize the credit risk, market risk, inflationary risk and liquidity risk.

The assumptions and deep analysis of specific investment instruments are responsibility of the team that invest the assets of the pension funds in the pension company and they must take account of the risk of increased public awareness and membership for the investment of pension funds and the current financial crisis . The governance and control of investments of pension funds by the pension company should be in accordance with fiduciary duty and it is obligated to use certain level of care, efficiency and skills that are used by reasonable man in investment capital.

Again we point out that when it comes to invest the pension funds must focus attention on the overall portfolio consisting of different instruments like stocks, shares, bonds and deposits which are traded on the domestic and foreign capital markets. MAPAS is checking and analyzing each investment in each instrument, but for the interests for members of the pension fund and for the public must keep in mind that always must be analyzed the overall portfolio. Eeach single type of instrument is a percentage of the overall portfolio.

Currently, MAPAS and the Ministry of Labor and Social Policy, as proponents of the legislation, work on changing the laws on mandatory and voluntary fully funded pension insurance in the part of the investments of pension funds. These changes are predicting expansion of the investment opportunities and increasing the scope of permitted instruments, both domestically and abroad, by including instruments from fast - growing countries. It also provides the introduction of various types of portfolio, within a fund, which will have different investment strategies with different risk. The inclusion to the portfolio will be selected by the member depending on their risk preferences, as well as his age.

Please note that for transparency in the fully funded pension insurance and greater public awareness MAPAS each year is preparing a report for the current situation in fully funded pension insurance and each interested person may be introduced with the activities of pension companies and pension funds, in particular for the investing of the pension funds, comparative data of investment and their results .