Largest Polish Asset Manager to Invest More Abroad After Brexit

  • PZU seeks to invest more in U.S. assets, east European bonds
  • Insurer won’t reduce share of Polish state debt in portfolio

Poland’s largest insurer and asset manager plans to buy more stocks and bonds outside its home country to better deal with risks stemming from the U.K. vote to leave the European Union and under-performing local markets.

PZU SA, which has more than 65 percent of its $14 billion portfolio in government bonds, may invest more on U.S. markets and in treasury notes of central and eastern European governments as it considers a “global diversification” strategy, Chief Executive Officer Michal Krupinski said in an interview on Monday. Polish assets were among the worst hit by Brexit in emerging markets, with the zloty sliding to a four-year low against the euro on Friday, before recovering some losses.

The company’s earnings have been under pressure in the past years from diminishing interest rates and falling valuations on the Warsaw Stock Exchange. Its net income dropped 21 percent to 2.34 billion zloty ($584 million) last year. PZU’s net return on its investment portfolio, excluding bank operations, fell 64 percent year-on-year in the first quarter, following a slump of Polish assets in the wake of the country’s downgrade by S&P Global Ratings.

“The Brexit vote combined with low interest rates in Poland shows how important it is to go abroad with investments,” said Krupinski, 35, who took over in January after working for Bank of America Inc. PZU plans to keep the same share of Polish government bonds in its portfolios after making adjustments, such as shortening the average duration of its securities, before the Brexit vote, he said.

‘Choppy’ Markets

The insurer holds about 35 billion zloty in Polish government bonds and 2.1 billion zloty in the notes of other governments, according to its first-quarter report. Polish bonds are the worst performers in eastern Europe this year, with a Bloomberg index of local currency notes dropping 1.4 percent in dollar terms, compared with a 4.8 percent gain for the region as a whole. Warsaw’s WIG20 index declined 7.5 percent in dollars this year, compared with a 1.3 percent gain in the MSCI Emerging Markets stocks gauge.

PZU’s diversification, which will also include investments in corporate bonds and limiting its real estate portfolio, is aimed at helping put a stop to earnings decline this year and return to growth in the next years. PZU will present its 2020 strategy in mid of July.

“Choppy” financial markets will cap PZU’s war chest, needed to continue to build up its banking assets, Krupinski said. He didn’t specify its size, other than that it wouldn’t be larger than the company’s surplus captial. Andrzej Klesyk, his predecessor at PZU, said in November that the insurer’s coffers would grow to about 6 billion zloty in 2016.

Krupinski said that PZU, whose partly-owned lender Alior Bank SA is buying Bank BPH SA from General Electric Corp. for 1.23 billion zloty, remains interested in “all attractive” takeover options in Poland. Raiffeisen Bank International AG is selling its Polish unit, while UniCredit SpA is considering disposing its 50.3 percent stake in Bank Pekao SA, people with knowledge of the matter regarding the Italian bank said last month.

Before it's here, it's on the Bloomberg Terminal.