55 Earn Right to Handle Pension Funds

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55 Earn Right to Handle Pension Funds

By Lyuba Pronina and Alex Fak, Moscow Times

September 8, 2003

The Finance Ministry announced Friday a list of 55 private companies with the right to manage billions of dollars in pensions savings, amid criticism that such a profusion will confuse people and leave control of the funds in the government's hands.

As of next month, some 40 million pensioners-to-be must either select one of the 55 private companies or have the investment portion of their money managed by state-owned Vneshekonombank, or VEB, by default. Their combined pension savings to be invested have reached nearly 40 billion rubles ($1.3 billion), which is expected to grow to 170 billion rubles next year and 1.3 trillion rubles by 2010.

But with so many competitors, companies will have to fight to get a decent share of the market.

"It is laughable to have 55 companies in such a small market. It makes the business unattractive," said Anatoly Milyukov, general director of Alfa Capital.

Private management companies polled Friday said passing muster was a snap after the tender criteria were eased, including dropping a requirement for a five-year track record.

Only four companies, including the Bank of Moscow and Deutscher Investment Trust, failed to make the cut, as they had posted losses in the past two years, Finance Ministry representative Yury Zubarev said.

Milyukov said the criteria were relaxed following "hard lobbying" by large corporate structures that want to keep pension money in the company.

The list features only about a dozen well-known names, including Troika Dialog, Alfa Capital, Aton and United Financial Group, among myriad smaller management companies created specially by corporate groups.

Igor Moryakov, executive director at Troika Dialog's management company, said that by allowing so many companies onto the pension market, the state has shifted the responsibility for narrowing the field onto the shoulders of future pensioners.

"Psychologically it is easier to choose [VEB]," Moryakov said, while large corporate groups may steer their employees toward their in-house management companies.

An overcrowded market is not management companies' only bellyache.

Delays in mailing out account information to future pensioners have left too little time before the Oct. 15 deadline for people to knowledgeably select a management company, the company representatives said.

On Saturday, Prime Minister Mikhail Kasyanov said the government will set a new deadline, "on Monday or Thursday at the latest," for the Pension Fund to complete its mailing.

"After that we will decide on moving other deadlines for pension reform," Interfax quoted Kasyanov as saying.

Pension Fund chief Mikhail Zurabov suggested moving the deadline for management company selection to Dec. 1, and the deadline for transferring to management companies the pension savings now managed on behalf of the Pension Fund by VEB to Feb. 1.

"We do not expect to get the money earlier than the middle of next year. A Feb. 1 deadline is not realistic," Alfa's Milyukov said.

Management companies would have less than a year to invest pension funds, which is not enough time to reap the profits necessary to impress future pensioners, Moryakov said.

"The game will be a tough one," Milyukov said.