Polish Pension Fund Opt-In Rush Saves Bourse From Selloff

Aug. 1 (Bloomberg) -- Polish pension funds, among the biggest investors on the Warsaw Stock Exchange, retained enough clients during the industry’s overhaul to continue operations and avoid the risk of forced equity sales.

More than 1.8 million Poles filed requests to keep savings at private pension funds by yesterday’s deadline, Zbigniew Derdziuk, head of the state-run Social Security Office, said at a news conference in Warsaw today. The number of declarations have accelerated from 971,083 at the end of last week, he said.

“The worst-case scenario didn’t materialize,” Dariusz Gorski, an analyst at Bank Zachodni WBK SA in Warsaw, said by phone today. “Pension funds won’t have to sell Polish stocks.”

Uncertainty about the industry weighed on the Warsaw bourse this year, fueling concern funds may flood the market with stocks to raise cash for pension payouts if too few Poles decide to keep savings at the institutions. Poland overhauled the industry in February to cut public debt growth, stripping the funds of government bond holdings and turning them into equity-focused asset managers.

Stocks Decline

Poland’s benchmark WIG30 Index advanced for the first time in six days, closing 0.7 percent higher today. The gauge has lost 1 percent this year, compared with a 9.4 percent increase in the MSCI Emerging Markets Index in zloty terms.

Under the industry’s revamp, about 14 million Poles had four months to decide if they want to continue allocating 2.9 percent of their pay checks to private funds or automatically switch to the state system. The 13 private funds, which held 152.2 billion zloty ($49 billion) in June, mostly in Polish stocks, will continue to manage their existing assets until transferring them back to the state before clients retire.

“For us it’s a positive outcome, taking into account how few people signed up at the beginning and the fact that we were banned from advertising,” Malgorzata Rusewicz, head of the Pension Funds’ Chamber said in an interview with TVN24 BiS. “There’s no threat to pension funds continuing operations.”

The funds were set up in 1999 to cut reliance on Poland’s communist-era, pay-as-you-go social security system. The new rules require funds to keep at least 75 percent of assets in stocks, with the minimum falling to 55 percent in 2015.

Foreign Investments

Poland’s three biggest pension funds are run by ING Groep NV, Aviva Plc and PZU SA, which jointly manage 60 percent of the industry’s total assets, according to data on the Polish financial-markets supervisor’s website.

The Warsaw Stock Exchange is central Europe’s biggest equity market with total value of domestic companies exceeding $191 billion. The market’s growth stalled as the government also doubled limits on pension funds’ investments abroad to 10 percent of assets to comply with European Union regulations.

Pension funds, which raised their foreign holdings to 7.35 billion zloty in June from 5.84 billion zloty in February, will continue investing abroad as the cap will rise to 20 percent in 2015, Ewa Radkowska-Swieton, chief investment officer at ING PTE SA, Poland biggest pension fund, said on July 17.

“It will take some time for foreign investors, who determine the direction of the local market, to decide if it’s the right moment to start buying Polish stocks,” Jaroslaw Lis, who helps manage the equivalent of $956 million at mutual fund BPH TFI SA in Warsaw, said by phone today. “We will need sound macroeconomic data and positive global sentiment.”

Polish manufacturing activity showed its first contraction in 13 months amid predictions the economy will slow further as sanctions damage trade with Russia. The July purchasing managers’ index fell to 49.5 from 50.5 in June, Markit Economics said today in a survey for HSBC Holdings Plc.

To contact the reporters on this story: Piotr Bujnicki in Warsaw at pbujnicki@bloomberg.net; Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net Pawel Kozlowski, Wojciech Moskwa