Mandatory Private Pension Funds Post Good Yields

The mandatory private pension funds in Romania (Pillar II) have posted an 8.9% yield for their first nine months in business, equal to an annualized yield of 11.9%, whereas foreign counterparts reported negative results for 2008. Romania is the only country in Europe where Pillar II pension funds have posted a positive result for 2008, according to Crinu Andanut, President of the Association of Privately Managed Pension Funds in Romania (APAPR).

The good performance was achieved despite unfavourable market conditions caused by the global financial crisis. However, it should be considered that the private pension market in Romania is very young, with net assets amounting to 1.07 billion RON (250.8 million EUR) on 20 February 2009.

With an annualized yield of 11.9%, the Pillar II funds managed to top not only the inflation rate (6.3% per year), but also bank interest on deposits, which reached a seven-year peak recently, APAPR announced. The interest offered by banks on deposits in 2008 averaged 9% (annualized), while deposits created in 2009 yield 11.6% (annualized average), according to statistics released by the National Bank of Romania.

"The private pension companies achieved such performance while maintaining the lowest investment risk possible and to the benefit of the investors," the APAPR president added. The mandatory private pension funds (Pillar II) invested their money primarily in fixed-yield securities that offer very attractive yields at a time of crisis, when shares and variable-yield securities are causing losses, despite being more profitable under normal circumstances.

Generally speaking, all the Pillar II funds have adopted a conservative strategy. For the time being, only the overall performance has been made public, without any reference to a comparative analysis. The first official comparative analysis on investment performance will take place in a year and a half and will be conducted by the Private Pension System Supervisory Committee.

The investment performance of the mandatory private pension funds was calculated as a weighted average yield (based on net assets) between 20 May 2008 and 20 February 2009 (the first nine months after the funds were established).