Mandatory private pension funds, which were launched in Romania just six years ago, reached a total of 6.15 million participants and piled-up assets totaling EUR 3.5 billion, according to the Romanian Pension Funds’ Association (APAPR).

Six years ago, mandatory private pension funds started with about 4.15 million participants, which were initially registered. In the meantime they added some 2 million more participants. Out of the total 6.15 million participants, some 3.7 million have their contributions paid monthly.

Initially, the state transferred 2 percent of the gross salaries of Romanian employees to the private pension funds, out of the 10 percent the state gathered as social insurance contribution (CAS). The sums gradually increased reaching 4.5 percent in 2014 and by 2016 it should grow to 6 percent.

As the contributions transferred to private pension funds grew, so did their assets. In six years, they received some EUR 2.8 billion to administer and made EUR 675 million in net profits. The average yearly return for private pension funds in these six years was 11.2 percent, while 95 percent of the total assets were invested in Romania.

Two thirds of total assets are placed in state treasury bonds, some 16 percent are in listed shares and the rest go in corporate bonds, bank deposits, mutual funds and other financial instruments. For the moment, mandatory private pension funds are prohibited to invest in real estate or other risky assets.

Lately, private pension funds became key players on the Romanian capital market, with EUR 450 million invested in Romanian shares listed on the Bucharest Stock Exchange. This level could double in the following years as sums available for new investments are constantly growing.

Currently, some of the largest positions which pension funds hold on the local market are in blue-chip shares such as Fondul Proprietatea, OMV Petrom, Romgaz, Banca Transilvania, Transgaz, BRd and the five Romanian investment funds (SIFs).

However, pension funds’ managers complain that there are still quite few investable assets on the Romanian market and are looking for more state owned companies to be privatized through the Bucharest Stock Exchange (BVB).

In 2013, local pension funds bought about 13 percent of the EUR 390 million initial public offering of Romanian gas producer Romgaz, which was the largest IPO ever in Romania.

Managers also say they would like to see more private companies listed on the local stock market, which still lacks quality companies from sectors such as IT&C, telecom, retail or agriculture. This is why some pension funds also invested abroad in countries such as Poland, Austria, France or Germany in order to diversify their portfolios.

There are eight mandatory private pension funds currently on the Romanian market, compared to 18 in the beginning, as many funds merged to increase their assets and to become more efficient. The largest funds are managed by ING, Allianz-Tiriac, Alico and Generali.

Andrei Chirileasa, andrei@romania-insider.com