If companies start going bankrupt our losses will become real

Thisisthefirsttimeyouarestruckbysuchacrisis, the Rate of return of the pension funds for the 10 months of this year is negative. How would you manage with the money that people have entrusted to you?

- That is not quite so. We have our 14 years of history and this is not our first crisis. We passed through the years 1996 and 1997, when all types of savings were devaluated, including those that we are managing. That crisis affected only Bulgaria, it had not the global character of the present one but I would not dare say which one was harder. At that time our clients passed through minus 50, even minus 70 percent of negative Rate of return. Now they are still with us and they not only have restored the losses of that period but also go through the present crisis. And their account balance is still positive. With long term saving, like pension insurance, no matter how long is the crisis there is enough time to restore the Rate of return levels.

But clients of the general funds say "they not only make us give our money but even lose it". They want the laws changed so they can withdraw their money and deposit them with the banks.

- The contributions made to the supplementary pension funds are actually part of those for state social security, only that they are managed on the principle of individual account savings where Rate of return is accumulated. And when the person starts receiving his pension the pension is also "updated" monthly by the Rate of return. All right, we will liquidate the supplementary funds, but the only thing that may happen with this money is to direct it again to the public pension fund. Because the pension insurance contribution now is 22 per cent and 5 per cent of it, for the people born after December 31, 1959, goes to the general fund. If we do away with the general funds then those 5 per cent will go to the public system.

Why did you not take measures in good time not to realize the present low Rate of return?

- I do not agree that we have not taken measures, the funds struggle with the crisis since the beginning of the year. We restructured our investment portfolios; we have even prepared them in case that the crisis deepens. We have increased to the maximum the levels of investments in bank deposits and that is why we required guarantees for them.

You got them, didn't you?

- Virtually we didn't. They gave us guarantees up to BGN 100,000 per fund and we wanted up to the full amount of the deposits; the funds have invested about BGN 350 million of the money of the insured persons in bank deposits, the state guarantees just 3 million of them. But more important is the problem not with the guaranteed amount but with one of the legal texts according to which the guarantees for the bank deposits are not valid in case of privileged conditions of the deposit. And with us they are always privileged since the pension funds invest millions. So, we actually have no guarantees.

The present Rate of return results of the pension funds were defined as accounting loss from assets revaluation and not as real losses. Are real losses possible in future? And when will the restoration of Rate of return begin?

- In order to answer that question we will have to try to predict the future development of the crisis, something that even the most competent analysts would not dare do. But we must take actions for future restructuring of the portfolios in order to preserve people's money.

What are you going to invest in, in more government securities and bank deposits or you are going to change the assets in EURO to avoid a possible currency risk? Are those instruments suitable for the pension savings?

- I would probably be the most successful manager if I knew for certain the answer of this question. The truth is that there are no risk-free instruments and in a time of crisis the usual risks get bigger. For instance, it is a general belief that government securities are low risk securities but in fact the crisis has its impact on them too. Recently the yield on government securities gets higher, which means that the risk also gets higher. At the beginning of the year the return on the ten-year government securities was a little above 5 per cent, now at the last auction it reached 7.19 per cent. It is also a fact that with treasury bonds at the amount of BGN 35 million offered for sale, orders of primary dealers amounting to only BGN 3.5 million are approved. Looking at those numbers we cannot but ask why the primary dealers have purchased such a small amount of government securities, or the opposite, why the government has approved only a few orders.

Is the investment in government securities something good at present?

- It is difficult to say. We should have in mind also one more fact - foreign banks every day offer us to buy Bulgarian government securities at yield levels of about 9 per cent.

It means that foreign investors want to get rid of the Bulgarian government securities, don't they?

- It's obviously so. As a result from the crisis many foreign financial institutions have liquidity problems and they are urged to sell assets at any cost. We should not also neglect the fact that the credit rating of the country was recently decreased and that naturally affected the yield of those securities. Their risk is measured also in the light of the expectations of foreign analysts for the future impact of the crisis on the economy of our country, including on the stability of the Bulgarian Lev.

Are You afraid that Bulgarian companies may close due to reduced production or even go bankrupt?

- There is a risk the crisis to affect also the real sector in Bulgaria. In this connection pension funds are also quite worried. It is naive to think that the Bulgarian firms will come out of the crisis untouched.

Does all that have anything to do with the pension money?

- If things come to bankruptcy of Bulgarian public companies or of companies that have issued bonds and if the pension funds have invested in such companies we may expect not only accounting but also real losses. We have concentrated all our efforts in the analysis of every public company and in reassessment of its state and risks.

Have you found such risky public companies that might drag you down?

- I would not take the liberty to mention names but we find a lot of problems. The most serious of them is that it is very difficult and sometimes even impossible to receive the necessary information to make this analysis. This fact is alarming and it is necessary to take measures, including changes in legislation, in order to increase the transparency, the reliability and the comprehensiveness of public information about those companies. In this respect Bulgaria lags far behind. Public companies abroad publish information even about their mother's milk and we here struggle to find which offshore company belongs to whom. What are its relations with the official major owner? Who are the biggest clients of the firm, etc? We have found in many cases that offshore companies abound in public companies in various qualities: as owners, as big clients, etc. I think it is high time for public companies to be obliged to disclose any kind of relationships with offshore companies and bring their owners into daylight.

What are the practices abroad?

- Abroad nondisclosure of information from the public statements is qualified as a criminal offence. Here we beg the companies to voluntarily disclose this information.