The Romanian CFA Association suggests diversifying pension fund portfolios (level II), referring to the recent GEO project. He also believes that the commission of administrators is low.

Three things that CFA Romania offers

1. Investment diversification of portfolios of non-state pension funds

The main principle of reducing and managing the risks associated with the portfolio of pension funds is diversification. Thus, pension funds can be protected from adverse changes in the price of some assets in the portfolio, as is currently the case with the value of government securities.

“For example, currently in the portfolio of pension funds, more than 60% of assets are in government securities issued by the Romanian government. Due to the concentration on one asset and one issuer, the value of funds is negatively affected by the development of inflation. This rise in inflation has led to higher interest rates and, implicitly, to a loss in value of pension fund bonds. Without diversification, pension funds will not be able to achieve returns above inflation in the medium term, to the detriment of participants. In addition, there are also benchmarks adopted by Romania through the PNRR in the direction of the diversification of Pillar II private pension fund portfolios,” says Adrian Codirlasu, CFA – Vice President of the Romanian CFA Association.

In the same vein, banning pension funds from investing in private equity funds is not a solution. The reduction in the liquidity of private equity investments can be mitigated by aligning local regulations with the common European framework under Directive 2011/61/EU (AIFMD) and by following the industry standards set by Invest Europe, the largest private equity association. in the world.

At the European level, pension funds are the most important investor in private equity funds (about a third of capital comes from pension funds). Almost all pension funds in Europe already have a Private Equity investment program or are in the process of implementing it.

2. Long-term sustainability of the non-state pension system

A draft emergency order proposing to abolish one of the two sources of income for pension fund administrators, namely the commission applied to contributions paid to both Tier II and Tier III pensions, along with new requirements for procedural changes to the organization and the activity of administrators creates additional pressure on the activity of administering these pension funds.

Local pension fund management fees are among the lowest in Europe, with management fees for most pension schemes ranging from 0.3% to 1.5% per annum applied to assets under management. This is in the conditions when in Romania, unlike other countries, the administrator also bears a number of commissions related to the trading activities of the fund, an element that is not present in international practice.

In our opinion, there is a strong contradiction between the increasing level of complexity of managing diversified portfolios of assets in a volatile economic environment and the need to ensure adequate resources for management activities.

“The Romanian CFA Association believes that the stability of the pension system should be the most important issue for Romania in the next 20-30 years. Without diversifying the portfolio and without allocating the necessary resources, we will not be able to count on the relief of the state system from the payment of an increasing number of pensions and we will not be able to provide a decent pension. Pension funds represent long-term and very long-term investments that could support the development of the local capital market, as well as infrastructure projects and Romanian business”, according to Oleksandra Smedoiu, CFA – president of the organization.

The organization’s proposal is to compare the level of the commission with the best practices in Europe, in parallel with the increase of contributions to private pension funds of Level II, the main purpose of which is the proper functioning of the system.

At the same time, we propose alignment with international practice for reporting transaction fees at the fund level to show a true and comparable picture of pension fund income.

3. Appropriateness of sanctions applied to the activities carried out and avoidance of conflict of interests regarding the application of sanctions by the financial supervision body

The principle of European law is the principle of proportionality. Our proposal relates to the correlation of the amount of fines with established facts, as well as to the limits of professional liability insurance and income from the wages of persons subject to sanctions. In its current form, the draft ordinance does not comply with the principle of proportionality.

We also believe that the fines applied should be revenues to the public budget to eliminate any sense of conflict of interest.