Romania prepares for extreme steps taken by pension fund managers

Romania’s Government is preparing a new emergency ordinance (OUG) to regulate the functioning of the mandatory private pension funds under the scenario that all seven private managers decide to pull out of the market, prime minister Viorica Dancila's advisor, Darius Valcov, informed.

However, he expressed confidence that part of them will increase their capitalization in line with the provisions of emergency ordinance (OUG) 114/2018 and remain in the market.

"None of them told us they decided to pull out of the market," Valcov stated, quoted by local Ziarul Financiar. Next week, the representatives of the parent groups behind the seven fund managers will hold a meeting with the Government, he added.

Under OUG 114/2018, the seven fund managers have to increase their capital by some EUR 800 million, which is twice the fees they collected since they started their activity in Romania. At the same time, they will be allowed to charge smaller fees, depending on the yields reported by individual funds.

Darius Valcov insisted that the average nominal yield of the seven mandatory private pension funds over the past two years was 2.14% (in annualized terms), lower than the inflation rate over the same period. He never explained the methodology used for calculating this figure, while the official data published by ASF point to much stronger yields, although shrinking in real terms, but still at a positive 1.3% for the past two year’s average as of September 2018.

The return on equity (ROE) for the seven fund managers was 49% in 2018, Valcov argued.

(Photo source: Inquam Photos/Octav Ganea)