NIF managers cashed in on state assets - report says

The National Investment Funds (NIFs) should be liquidated, according to a report by the Supreme Chamber of Control (NIK) published last week. Although the report states that the NIFs played a key role in the restructuring of Polish companies, it criticized the results of their investment activity, which has consistently generated losses since 1996. In 1996, assets in state-owned companies worth zł. 5.9 billion ($1.48 billion) were divvied up among 15 investment funds and 25.9 million Poles received vouchers entitling them to a share in each NIF. But the inspection of two NIF and Treasury Ministry records by NIK revealed that investment fund assets fell by more than 40% to zł. 3.4 billion ($850 million) in 1999 from zł. 5.9 billion ($1.4 billion) three years earlier. "The sale of NIF-owned companies, the amassing of high-liquidity components in investment portfolios, the consolidation of NIF stock in the hands of large international capital groups, the purchase of NIF shares by other NIFs and the failure to pay dividends point to liquidation as the next state of the evolution of investment funds," the report states. NIK criticized the funds for failing to provide significant returns for their shareholders, saying that profits that could be obtained from the sale of vouchers on the Warsaw Stock Exchange (WSE) from 1996 to 1998 was between zł. 27 and zł. 150 or only 2.2% to 14.9% of the average monthly salary. According to the state auditor, the program mainly benefited NIF fund management companies, which received a total of zł. 526.1 million ($131.5 million), representing 15.2% of the value of the funds. But the auditor's comments about the NIF earnings are unjustified, said Arkadiusz Chojnacki, an analyst at COK Bank Handlowy. "I think the constant complaints about the revenues of fund management firms are a misunderstanding," Chojnacki said. "If the government offered them these fees then they cannot be expected to turn them down - they should have just been offered less in the first place." NIK commended the NIFs for their role in restructuring and privatization, which saw the sale of 187 companies compared to the 88 sold by the treasury from 1996 to 1999. Nevertheless, the cost of the NIFs privatization was 14% higher and saw 75 companies liquidate, or 14.6% of the initial number. "In the funds inspected, fund management firms have contributed to restructuring, increasing capital, improving management, obtaining new technology and sources of finance," the report states. In defense of the NIFs, analysts point to the successful restructuring and flotation of Ropczyce magnesium mine, Przedsiźbiorstwo Przemysłu Spożywczego (PPS) breweries, and roofing materials manufacturer Izolacja. "Although the results of the program may not have been as great as expected at the very beginning, I think it was the only way to privatize so many companies reasonably quickly," said Benita Mikołajewicz, an analyst at ING Bank. "Some of them were restructured, some of them were listed or sold to strategic investors. Although the results are not really encouraging, some positive contribution was also made."