Vnesheconombank’s Trust Management Department Director Alexandr Popov’s Interview to New Agency Interfax-AFI

INTERVIEW: Management of pension money is separated from the bank for development functions by “a Chinese Wall”-VEB

Moscow, September 25. INTERFAX-AFI – The Government’s initiative to temporarily transfer 500 billion rubles of non-governmental pension funds’ (NPFs) new savings is not related to the plans for an additional capitalization of the state corporation said Trust Management Department Director Alexandr Popov in his interview to Interfax-AFI Agency.

- Is the Government’s initiative to temporarily transfer 500 billion rubles of non-governmental pension funds’ (NPFs) new savings related to the plans for an additional capitalization of the state corporation?

-VEB acts as the state managing company absolutely irrespective of its function as a bank for development. This function is separated by a Chinese wall from other lines of VEB’s activity and is related neither to additional capitalization nor to any other issues of VEB’s activity in its capacity as a bank for development. These are completely different lines of activity and completely different sources of funds and they are based on different legislations. For example, we can’t buy VEB’s and its subsidiaries’ bonds through using pension savings funds. So, there is no and there can’t be any connection here. And I regard the position by various kinds of commentators and experts who link these two different things as irresponsible and nonprofessional.

-Where can VEB invest NPFs’ new pension savings funds?

-At a meeting with first Prime Minister Igor Shuvalov devoted to developing the funded pension system we talked about transferring these funded pension funds on temporary basis to the state managing company’s extended portfolio. If these funds are transferred to the extended portfolio we believe that they could be invested only in short-term deposits because we should ensure their appropriate liquidity for them to be returned to NPFs at short notice.

The fact is that we’ll be investing them on a temporary basis. These are NPFs’ funds and they are not ours, we are not entitled to take any decisions for NPFs. We’ll be investing them for two years at most. But nothing can prevent NPFs from completing all formalities for entering the guaranty system within three-six months. Dates of returning funds to non-governmental pension funds have not been set and we can’t make any forecasts in this respect.

This has been so far our opinion as a managing company. Everything will depend on a future legislative and regulatory framework of the Government’s initiative.

-What deposit periods do you mean?

-Here I mean three-month deposits for us to have sufficient liquidity to return pension funds in due time. I’d like to say it once more that various NPFs could enter into the system of guaranteeing pension savings within various periods of time. It would take three months for some NPFs and more than two years for others. We can’t make any forecasts here.

-What yields can you generate from investing funds of NPFs’ new pension savings?

Nobody knows so far how these funds will be invested. And we can’t say anything about investment yields in the next year. At present, we don’t have any short-term deposits in our portfolio. Nowadays, as part of its extended portfolio VEB is investing funds for long periods of time – for more than nine months.

Finance Minister Anton Siluanov said that pension savings would be returned to NPFs with due regard to yields from investing these funds at a minimum rate of inflation plus 1%. Will VEB manage to generate such yields from investing these funds?

-As far as yields are concerned we can’t guarantee anything and make any projections. If NPFs pension savings are invested as part of VEB’s extended portfolio they will be transferred together with generated yields from investing the whole extended portfolio and not only from investing funds that will be placed in short-term deposits.

-Will VEB need to change its investment declaration to invest NPFs pension savings in short-term deposits?

-No, it won’t if everything is left within VEB’s extended portfolio.

Can VEB invest NPFs pension savings in other instruments besides short-term deposits?

-If we could buy short-term bonds with duration of about three, six months at most it would be theoretically possible. We don’t have many of such instruments and as a rule there’s no way buying them in great quantities.

Financial Economic Service