The Association of Hungarian Investment Funds and Asset Management Companies (Bamosz) expects a 30%–40% drop in assets managed by its members as a result of the elimination of the mandatory private pension pillar, Bamosz Secretary General András Temmel told the Budapest Business Journal. In the long run, this may be offset by investments made by retail investors, as the government now aims to boost domestic savings and promote self-provision.

There are still uncertainties, but there is a good chance that a few private pension funds will survive, as more than 30,000 people have already decided to remain members at press time, more than one week before the end-January deadline. But this still means that more than 90% of the HUF 3,000 billion private pension fund assets will be transferred to the state pillar during the year. Within this, government securities, accounting for approximately HUF 1,500 billion, will be withdrawn, while assets managed by investment funds make up about HUF 850 billion. The investment fund certificates cannot be sold immediately, Temmel noted.

Consequences

“The reform certainly does not endanger our operations, although it will inevitably hurt our profitability, as we will lose approximately 30% of our assets in the value of hundreds of billions of forints,” Péter Simon, the business development director of OTP Fund Management told the BBJ. “I do not see fund managers disappearing from the market, as at smaller market players, such as CIB, for instance, the proportion of retail investors’ assets has been relatively higher,“ he added. OTP manages both the largest mandatory private and voluntary private pension funds in terms of assets.

“There might be layoffs at fund managers, where the management of the private funds’ assets were significant, while other companies may only be marginally affected by the changes,” according to Temmel. Fund managers backed by insurance firms, such as Axa and ING, will be hurt the most. On the other hand, K&H Fund Management told the BBJ that it will not be directly affected by the elimination of the second pillar, as the proportion of private pension funds’ assets is less than 1%.

Simon expects a rationalization in the product structure of investment funds, as products specialized toward private pension funds will disappear. He noted that these are mainly closed-ended funds, but private pension funds had assets in a few open-ended funds as well.

Self-provision

“Now that we have gotten over the shock of losing private pension fund assets, we are concentrating on what’s next,” Simon said. OTP Fund Management, in line with the parent bank’s strategy, aims to focus on the retail segment by encouraging consumer self-provision. Rather than increasing its lending activity in the current business environment, OTP Bank plans to promote savings by educating its customers of the importance of securing their own livelihood. “We need to more actively approach our customers, because while the second pillar was mandatory, voluntary pension funds and other investment vehicles require some financial awareness,“ Simon said.

OTP also plans to boost cooperation with other banks in order to distribute each other’s investment funds primarily for private banking clients, Simon said. This is in line with customers’ needs, as private bankers are expected to be able to offer a wide range of funds rather than merely their own products. On the other hand, the cooperation is limited to private banking, as most banks would not let their competitors near their retail client base, Simon added.

Currently, the retail segment and private pension funds account for a respective 50% and 40% of total assets managed by OTP Fund Management. Simon expects that the latter will account for only 10% of the total after the transfer is made. However, it will take at least five years to offset the losses resulting from the elimination of the private pension funds by the increase in the investments of the retail sector.