We will invest in Germany and Austria, our municipalities sit with folded arms

The Chief Executive Officer of PIC Doverie before 24 Hours newspaper

Mrs. Petkova, have municipalities shown any interest in the assistance you offered for putting the EU funds to use?

- Almost zero. Most of the municipalities prefer bank loans though that is not always the best solution. They still have not freed their minds enough to use all market opportunities. We offer them to become issuers of a type of securities we can invest the insured persons' funds in. A great number of municipalities have no clear project ideas. Others have no specialists to consult them.

Has your offer been well popularized or you rely on their initiative?

- We periodically meet with mayors and explain them. The efforts however should be mutual. We inform them so that they have us in mind as an alternative to the banks. From there on the initiative should rather be theirs.

What kind of projects have a better chance for financing? May be your requirements are too high?

- They must be significant municipal projects, approved by consensus and the municipality must offer collateral. Besides their value should exceed BGN 1 million. We have so far financed road rehabilitation and improvement projects, projects for building surgical departments at municipal hospitals, bus stations and sports centers. There is no limitation but the projects must always be connected with activities that will bring profit in future and they must be some type of municipal business. The scrap processing plant in Sofia for instance is an ideal project for that type of financing. For us such an investment is of low risk since it may be guaranteed by the municipality through the garbage fees we all pay. There are also many other possibilities, it is just a matter of making people in charge of the municipalities open their minds to them. Because if that does not happen, from the opportunity we offer will benefit other European countries. And that is much more likely to happen having in mind that there are 6 months left to the local elections and the municipalities are not even willing to discuss such opportunities. We already have no restrictions to invest by all means in Bulgaria.

Are you already conducting such negotiations with foreign municipalities?

- Yes, in Germany and Austria. We are in for this from quite recently but I think there will be more. And it is not that we are looking for them, they find us through their investment intermediaries.

Isn't there a risk for the money of the insured?

- There is no riskless investment but such investment is much more secure than for instance investment in shares on the stock exchange because the issuer is the municipality and not a private enterprise that tomorrow may be non-existent. The risk is much less.

Besides the municipalities have much better possibilities for guarantees: from the municipal residential fund, for example. The risk here is not so much from losing the money but from a deferral of the investment return..

Ultimately, as a pension fund we are responsible before our fund members and if we fall below the required minimum return, we are obliged to refund their money on our own account.

What are your forecasts about pension insurance in the next 1 or 2 years?

- The pension funds assets will keep on growing, which is a problem, since the country became small for them. That will raise the prices of shares on the stock exchange, which is good since it shows development of the capital market and meanwhile is bad since our capital market is quite small.

The pressure of the financial resource searching where to be invested has an effect stronger than the normal. The risk is in that shares the price of which exceeds their real value will grow. That is quite dangerous, because the insured persons may come to get only the so called paper profit. It is official, legal, but impossible to realize. We must be very careful. Not in vain, there are new requirements for us to have rules for risk assessment that must obligatorily be made public to the insured persons. Because some funds will be more aggressive, striving for quick profit, others - more conservative but more stable.

Which are the most risky from the allowed investments?

- Real property. Pension funds are often challenged by quick profits but it is intolerable to do this by all means. You cannot invest in enterprises harmful to people's health or to the environment. We cannot buy property from groups whose capital is of doubtful origin and who are engaged in money laundering. We are obliged to make sure of those things so as not to turn our members' money into a means of legalization of an underground business. I, personally, stopped several such transactions taking the risk of achieving smaller return and missing some profit.

Do you think that the smaller yield recently is a sign that people prefer to invest their free money elsewhere instead of the pension funds?

- It is normal that the yield becomes smaller as the country risk becomes smaller. The last year liberalization of the investment regime of the funds led to the restructuring of the pension funds' portfolios. There is always some yield reduction in such cases.

Our investment abroad would not raise the yield. Just the opposite, there it will be smaller due to the smaller risk. The geographic variety of the portfolio however will make our investments more secure. In the next 1 or 2 years the investment yields of the pension funds will be above the minimum defined by the Financial Supervision Commission. Those who save money in a pension fund do this for the purpose of receiving pensions in future and not to gain quick profit. I am certain however, that for the savings within the framework of about 10% of the monthly income of the person there is no more profitable variant than a pension fund. Since already on the entrance one saves up to 24% from the income tax, which is not valid for the mutual funds.