Photographer: Bartek Sadowski/Bloomberg

Poland to Revamp $35 Billion of Pension Funds as Stocks Lag

  • Government wants more “efficient” funds, deputy minister says
  • Warsaw stocks lag peers since 2014 overhaul of fund industry

Poland’s equity market is back under scrutiny as the country’s new leaders set their eyes on overhauling an industry that controls one-fifth of local stocks traded in Warsaw.

The country’s pension fund industry, which manages $35 billion in assets, will be reviewed in the second half of the year as the government seeks to “improve the efficiency of their investments,” Deputy Labor Minister Marcin Zieleniecki said an interview on Monday. The nation’s 12 privately-managed funds, which have been active since 1999, were stripped of 51 percent of their holdings in bonds in 2014, when a previous administration sought to reduce the country’s debt burden.

Polish stocks have lagged behind peers in emerging markets as the government elected in October levied the highest taxes on bank assets in the European Union to fulfill campaign pledges to boost social spending. The latest planned overhaul puts at risk directives for pension funds, which were set up to provide a source of local, long-term financing for the nation’s growing companies as well as capital to businesses abroad in eastern Europe, including companies from cash-strapped Ukraine.

“Uncertainty about the future of pension funds holds foreign investors, including us, from investing in Polish stocks, even if country’s macro story is attractive,” said Andras Szalkai, who helps oversee about $2 billion in emerging European assets as a fund manager at Raiffeisen Kapitalanlage GmbH in Vienna. “Until the final outcome of pension review is known, it’s difficult to weigh risk.”

Poland may consider merging all of the funds into one entity, which would be managed by state-controlled insurer PZU SA or lender Bank Gospodarstwa Krajowego, newspaper Rzeczpospolita reported on May 27, citing government sources it did not name. It’s too early to comment on any merger of pension funds, said Zieleniecki.

“The government is aware that the wellbeing of the Warsaw Stock Exchange depends on pension funds,” Zieleniecki said by phone from Warsaw. “But in this shape, the funds aren’t safeguarding future pensioners or investing efficiently.”

Warsaw’s WIG20 index has dropped 11 percent since October, compared with a 4.4 percent slide in the MSCI Emerging Markets Index. Equities haven’t been the only loser, with the zloty weakening 3.2 percent against the euro this quarter, the fourth-biggest decline among 24 emerging markets. Polish government bonds have dropped, sending the 10-year yield up 28 basis points to 3.12 percent.

Equity Focus

The cabinet may consider broadening investment options for the funds as their present stock-focused portfolios aren’t “efficient,” Zieleniecki said. The previous government took over the funds government bond holdings, canceled the debt and banned the institutional investors from purchasing such securities. Meanwhile, Warsaw’s WIG20 index has showed negative returns for three years running.

“Investors have been shedding Polish stocks for a while, seeing risk of a massive sell-off of shares held by pension funds after a possible takeover of their assets by the state,” Rafal Benecki, the chief economist at ING Bank Slaski SA in Warsaw, said by phone yesterday. “Such proposals, if communicated wrongly, may hit the zloty and other Polish assets.”

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