Fund managers look for straight answers on pension reform
Take the question Krzysztof Stupinski, who runs the asset management operation of ING Barings, posed to Cezary Mech, chairman of the new Pension Fund Supervisory Office at the conference June 24.
"How many employees will you have on the first of August?" Stupinski asked.
That wasn't just an idle question, or an attempt to find out if Mech's operation would be larger than that of the pension reform's plenipotentiary office headed by Marek Gora.
The supervisory office officially starts taking licensing applications Aug. 1 for new funds created under the second pillar of pension reform. And it will receive dozens of them - truckloads of complex documents to analyze, including those aiming to establish the credibility of the applicants, both financially and in terms of their teams of specialists. The new office promises to give "Yes" or "No" licensing answers within three months.
So it was an on-target question from a probable participant. But it was also a bit embarrassing. Mech conceded, after a bit of hemming and hawing, that there is a "certain amount of controversy" in the fact that the pension fund supervisory structure has been put in place before the budget is ready to fund it fully.
"The original assumption had been that the office would be created and the timetable (for the beginning of the pension reform program) postponed so that the office would be in place for four months before the start-up," he said.
Instead, pension system reform is holding to its original timetable: the creation of the supervisory office in May and an acceptance of licensing applications in August with decisions on them due within three months.
Thus, the start-up of the pension reform program is set for Jan. 1, 1999, which will involve nearly a million people opening individual pension fund accounts in the newly licensed, privately managed pension investment funds.
But, Mech assured Stupinski, his office will cope. To that, pension plenipotentiary Gora said, if Mech needed the loan of some staff, he'd help out.
• • •
Another hot button is the continuing confusion over the role existing mutual or investment funds will be able to play in the second pillar.
Last summer, the mutual funds fought and lost the battle to be able to sponsor pension funds. Pioneer Vice President Marek Zytniewski argued, unsuccessfully, that it was crazy not to draw upon the experience and track record of Poland's investment funds for the start-up pension reform program.
The politicians decided to put a fire wall between the existing funds and the new pension investment operations - much to the delight of the insurance companies that are already "educating" their customers about how to follow them into the pension fund program.
At the EuroForum conference, Pioneer Investment Co.'s Justyna Bortkiewicz raised the issue again, with a new twist. The pension regulations would seem to say that 15% of the pension investments could be for investment funds - but with so many restrictions on types of investments that it would be hard for one investment fund to distinguish its strategy from another. If that is the case, what's the point?
Krzysztof Pater, deputy director of the pension reform plenipotentiary office, said, in essence, that nothing prevented investment funds from establishing separate legal entities and bidding for pension licenses - but he wouldn't promise that they would be able to bypass the intent of legislators. Colin Horne, chief executive of the PKO/Credit Suisse trust fund corporation, shared Bortkiewicz's concerns. "The regulators could have missed the boat on this."
The investment restrictions are not going to change, said Cameron McKenna's Iain Batty, and investment funds will have to find other ways to compete for pension fund money. "It might be in customer service or with asset management," he said. Or it could be in their fee structure: "I suspect that most will want to know what their competition will be doing. They'll all keep this under their hat until very very late," he said.
This can be a snakepit, too. Set the fees too low and you might attract plenty of customers - but not cover your costs. Set them higher and you might find it difficult to attract clients. His prediction: the smart money will be on those who cover their costs with slightly higher fees but enough wiggle room to lower the fees as sales grow.
• • •
One person, at least, felt he drew a bit of encouragement in solving one problem that has been worrying pension fund players.
Tomasz Orlik, who heads Pioneer's pension fund office, told Social Insurance Office (ZUS) chief Stanislaw Alot that the pension companies wanted to make sure their computer programs now being developed would be in sync with those being shaped by ZUS. "Is there any chance for a working team between us?" "Excellent idea," was Alot's comment.
That's progress, said Orlik, who planned an immediate follow up with the ZUS pension reform chief.
"How many employees will you have on the first of August?" Stupinski asked.
That wasn't just an idle question, or an attempt to find out if Mech's operation would be larger than that of the pension reform's plenipotentiary office headed by Marek Gora.
The supervisory office officially starts taking licensing applications Aug. 1 for new funds created under the second pillar of pension reform. And it will receive dozens of them - truckloads of complex documents to analyze, including those aiming to establish the credibility of the applicants, both financially and in terms of their teams of specialists. The new office promises to give "Yes" or "No" licensing answers within three months.
So it was an on-target question from a probable participant. But it was also a bit embarrassing. Mech conceded, after a bit of hemming and hawing, that there is a "certain amount of controversy" in the fact that the pension fund supervisory structure has been put in place before the budget is ready to fund it fully.
"The original assumption had been that the office would be created and the timetable (for the beginning of the pension reform program) postponed so that the office would be in place for four months before the start-up," he said.
Instead, pension system reform is holding to its original timetable: the creation of the supervisory office in May and an acceptance of licensing applications in August with decisions on them due within three months.
Thus, the start-up of the pension reform program is set for Jan. 1, 1999, which will involve nearly a million people opening individual pension fund accounts in the newly licensed, privately managed pension investment funds.
But, Mech assured Stupinski, his office will cope. To that, pension plenipotentiary Gora said, if Mech needed the loan of some staff, he'd help out.
• • •
Another hot button is the continuing confusion over the role existing mutual or investment funds will be able to play in the second pillar.
Last summer, the mutual funds fought and lost the battle to be able to sponsor pension funds. Pioneer Vice President Marek Zytniewski argued, unsuccessfully, that it was crazy not to draw upon the experience and track record of Poland's investment funds for the start-up pension reform program.
The politicians decided to put a fire wall between the existing funds and the new pension investment operations - much to the delight of the insurance companies that are already "educating" their customers about how to follow them into the pension fund program.
At the EuroForum conference, Pioneer Investment Co.'s Justyna Bortkiewicz raised the issue again, with a new twist. The pension regulations would seem to say that 15% of the pension investments could be for investment funds - but with so many restrictions on types of investments that it would be hard for one investment fund to distinguish its strategy from another. If that is the case, what's the point?
Krzysztof Pater, deputy director of the pension reform plenipotentiary office, said, in essence, that nothing prevented investment funds from establishing separate legal entities and bidding for pension licenses - but he wouldn't promise that they would be able to bypass the intent of legislators. Colin Horne, chief executive of the PKO/Credit Suisse trust fund corporation, shared Bortkiewicz's concerns. "The regulators could have missed the boat on this."
The investment restrictions are not going to change, said Cameron McKenna's Iain Batty, and investment funds will have to find other ways to compete for pension fund money. "It might be in customer service or with asset management," he said. Or it could be in their fee structure: "I suspect that most will want to know what their competition will be doing. They'll all keep this under their hat until very very late," he said.
This can be a snakepit, too. Set the fees too low and you might attract plenty of customers - but not cover your costs. Set them higher and you might find it difficult to attract clients. His prediction: the smart money will be on those who cover their costs with slightly higher fees but enough wiggle room to lower the fees as sales grow.
• • •
One person, at least, felt he drew a bit of encouragement in solving one problem that has been worrying pension fund players.
Tomasz Orlik, who heads Pioneer's pension fund office, told Social Insurance Office (ZUS) chief Stanislaw Alot that the pension companies wanted to make sure their computer programs now being developed would be in sync with those being shaped by ZUS. "Is there any chance for a working team between us?" "Excellent idea," was Alot's comment.
That's progress, said Orlik, who planned an immediate follow up with the ZUS pension reform chief.
