Romania’s private pensions deep in the red

The net asset value (NAV) of the mandatory private pension funds (Pillar II) has plunged by 8.5% on average in the year-to-date period at the end of September, Ziarul Financiar daily reported quoting data from the financial market’s supervisory body ASF.

The latest interest rate hike puts more pressure on the price of the bonds, which account for the largest part of the pension funds’ portfolio.

The Pillar II pension funds will thus certainly end the year with a negative performance - the first since they were set up. ASF reportedly requested the managers of private pension funds to submit their investment strategiesand updated action plans for current market conditions.

The daily ends on a positive note: not many contributors have to cash their participation in the private pension funds, and most of the 7.6 mln contributors can wait “until the exchange is bottoming out”.

Anyways, it should be noted that the Pillar II funds’ loss has nothing to do with the Bucharest Exchange, are real and cannot be stopped until the interest rates return in the region where they were when the low-coupon bonds in their portfolios were purchased - which is not likely to happen soon.

In the meantime, the Government is the beneficiary of the cheap financing extended by the Pillar II fund managers, who can, in turn, invoke restrictive investment regulations that forced them to keep the diversification at a low level.

Pillar II funds are bleeding each day, and the managers have to make a difficult decision:mark the loss (and deepen it in an attempt to get rid of the bonds) or hope for a better time soon. This is perhaps the first time a differentiation among the Pillar II funds will become visible.

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