Hungary's government debt management agency ÁKK has consulted with private pension funds on an individual basis on the transfer of their assets, which will take place between June 1 and 12, ÁKK deputy chief executive László András Borbély said.
ÁKK expects a big part of pension funds to transfer the assets already on June 1.
Private pension funds must transfer the assets ─ based on their valuation on May 31 ─ of former members to the Pension Reform and Debt Reduction Fund between June 1 and 12.
After the transfer, the funds are to calculate the real yields to go to former fund members based on the valuation of assets on May 31 and may request payment of these from ÁKK, the fund's manager, by July 20.
If the fund does not have enough cash, ÁKK may cover the transfer of the real yields with a bridging loan from the Unified Account of the Treasury.
The consultations are addressing first of all those atypical items in the portfolios that cannot be transferred or can only be transferred with limitations.
But this puts at risk neither the timing nor the sequence of the transfer to the Pension Reform and Debt Reduction Fund, said Borbély.
The law on the fund stipulates that if the transfer of some assets is not possible by June 12, the cash equivalent of these assets must be transferred.
We're talking about a large number of items with an insignificant value, Borbély said. He added that he was not in a position to give a more precise estimate because there "is no comprehensive picture" of the composition of the assets.
"ÁKK does not give and cannot give private pension funds general instructions for the transfer as it had neither the means nor the mandate to undertake preliminary reviews of individual portfolios," he said.
ÁKK has no more detailed information other than a securities-code list received from the market regulator PSzÁF that reflected the situation at the end of December.
Only “individual consultations shed light on what the funds in question could or could not transfer."
ÁKK first asked private pension funds for the consultations on the transfer of the assets in March, and it made the request in a letter on May 6. In the end, all 18 private pension funds answered the letter, and it is based on these responses that consultations are ongoing.
ÁKK made one general request in the letter in May for funds to transfer the estimated real yields in cash or in instruments that can be quickly turned into cash, such as National Bank of Hungary bonds, to the fund, Borbély said.
Government securities in the portfolios are not suitable substitutes this time as they are to be withdrawn.
Problems could arise in the transfer of securities to which pre-emption rights or divestiture restrictions are attached, furthermore with some types of closed ownership stakes, or with investment fund units, private capital funds or other investments that exclude from state ownership or that bear further payment obligations.
The portfolios also include forward transactions the transfer of which could take months.
In the talks, ÁKK wants to squeeze out the most difficult-to-transfer ─ and thus difficult-to-sell in the future -- assets as possible from the portfolios at the end of May, Borbély said.
He conceded that some items seen by them as problematic could remain in the portfolios by the May 31.
These are unlikely to impact the overall value of the assets transferred to the fund, although they could affect the real yields.
ÁKK will revalue all of the securities, including listed shares, received after the transfer to establish their liquidation value, that is, how much they would be worth if they were sold within a year, Borbély said.
The auditor has not yet been picked, and there is no set deadline for completing the revaluation at this time.
The funds or their asset assessments will not be reviewed during the revaluation as this is neither the task nor the aim of ÁKK, Borbély stressed.
The value of assets to be transferred by June 12 is HUF 2,860 billion, according to preliminary financial account data from the National Bank of Hungary.
Of this amount, the central bank estimates HUF 210 billion in membership fee supplements and real yields will be refunded to the private pension funds, and, ultimately, to former members.
Hungarian members of private pension funds had until the end of January to opt out of a move, along with their assets, back to the state pension pillar.
About 97% of members returned to the state pillar, bringing their assets with them.