Russian Pensions to Lose Billions through Government Rules

(September 23, 2013) — The creation of a new registration system for non-state pension funds in Russia will result in the funds losing RUB500 billion ($16 billion) in the next two years, according to news reports.

The Finance Ministry in Russia has proposed barring non-state funds from collecting and investing new contributions until they re-register as open joint-stock companies and are accepted into a new insurance programme, designed to boost transparency and accountability.

The registration process can take up to two years, during which time any new money due to enter those non-state pension funds will be transferred to the country’s state development bank, the VEB.

Money already managed by pension funds will stay with them through the reform period, and as soon as any of the more than 90 existing non-state pension funds re-registers and is accepted into the insurance programme, it will receive funds back from VEB.

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Finance Minister Anton Siluanov told Bloomberg the two-year registration process was necessary because it was “important to bring order to the regulation of the non-state pension funds system, to make sure only dependable and conscientious participants get access to the market”.

“It’s also important to set a strict prudential supervision on the financial market so that pension savings are protected,” he added.

Currently, one-third of Russia’s total RUB2.6 trillion of funded retirement money is invested in stocks and bonds by non-state pension funds.

But the VEB, which invests on behalf of people who haven’t selected a manager, focuses on government, mortgage, and guaranteed infrastructure-related debt, earning a yield of 9.2% last year.

Domestic inflation ran at 6.6%, meaning the VEB yield rate is relatively low. Russian investment experts told Bloomberg the measure would damage non-state pension funds not only through the lower returns on their new contributions, but also because corporate bond yields will be lowered by the move.

“The measure will lower the demand for domestic corporate bonds,” Dmitry Dudkin, head of fixed income research at UralSib Capital, said. “This will further widen the chasm between the state-related instruments and risks of private companies.”

The ministry is predicted to submit its proposals on non-state pension funds to the State Duma, the lower house of parliament, by the end of September.

(September 23, 2013) – More than $76 billion has been invested into energy assets and companies in the past five years from sovereign wealth funds across the world.

Data from the Sovereign Wealth Fund Institute found that $76.3 billion was directly invested in energy companies and assets by these government-backed agencies since 2008, with Western Europe receiving most of the money.

More than half of the money invested—$40.8 billion—was invested in Europe, with the UK among the top recipients.

North America received $11.8 billion in investments from sovereign wealth funds in energy stocks. Stock favourites included Royal Dutch Shell, BP, BG Group, and Total.

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Last week, the Alaska Permanent Fund committed $750 million to private-equity giant Carlyle, the majority of which will be invested in energy assets.

Green energy is also becoming more popular—earlier this month Singapore’s GIC bought more than 5% of the Energy Development Corporation, the biggest geothermal company in the Philippines.

And in Norway, the anti-taxation and anti-immigration party Progress Party has declared it wants to take 10% of Norway’s Government Pension Fund Global and use it to invest in, among other things, green energy. The political group will hold the balance of power, having entered the government for the first time this year.

It’s not just sovereign wealth funds who are keen on energy investment however: pension funds are getting in on the act too.

A growing number of European pension funds are throwing their investment might behind projects that use waste materials to produce enough energy to meet 21st Century needs.

Danish pension provider PensionDanmark announced a joint venture with Burmeister & Wain Scandinavian Contractor in August to build, own, and operate biomass power plants internationally.

The first power plant to open will be in Lincolnshire in eastern England. It will be primarily straw-fuelled and produce enough energy for 70,000 households and result in an annual CO2 emissions reduction of around. 300,000 tonnes.

The move follows an investment by the Merseyside Pension Fund, one of the largest in the UK public sector, in an anaerobic digester in north Wales. The plant was opened this year by HRH the Prince of Wales and will begin operations later this year.

The investment benefitted north Wales, Investment Manager Paddy Dowdall told aiCIO in July, by helping the local authority deal with its mounting waste pile and providing renewable energy.