Poland's pension reform may put some funds up for grabs
WARSAW Aug 30 (Reuters) - A planned reform of Poland's pension system that will scale down the role of private funds is likely to lead to a wave of deal-making in the sector, with the bigger funds swallowing up their smaller peers.
Warsaw has committed itself to overhaul the pension system - under which mandatory savings go both into a state pension pot and private funds - and is set to make a final decision on the system's shape in early September.
The changes aim to reduce public debt by transferring assets from private funds and give the government more room for manoeuvre to soften the impact of the economic downturn.
Poland's government has offered reassurances the private funds would not be scrapped, as some investors worried. However, they proposed shrinking their role and recommended moving some of their assets into the state vehicle.
"The planned changes may lead to a situation in which smaller players will find it harder to earn for themselves, so the smaller the OFE, the greater the pressure to wind down," a fund manager in one of the biggest pension funds said.
Already this year the smallest of the 14 local pension funds, known by their Polish acronym OFE, have been taken over: OFE Warta by Allianz's local unit, and OFE Polsat by the pension arm of Poland's No.1 bank, PKO BP.
In another sign of how the reform is affecting the market, PKO says it is putting on hold a final decision on whether to buy Nordea's pension fund. It wants to wait to see what the reform will involve.
"I think that in the end we'll be left with 4-5 OFEs and that consolidation will be unavoidable," said Krzysztof Tokarski, head of the investment fund arm of Poland's insurer PZU.
The bigger players in the Polish pension market include major international firms such as ING, Aviva, Axa, and Generali.
The smaller ones include funds owned by Allianz, UniCredit unit Pekao or Aegon.
The impact of the pension reform is likely to go beyond the sector. The private funds hold 284 billion zlotys ($88 billion) worth of assets, mostly treasury bonds and stocks.
They hold joint asset portfolios with a value equivalent to one fifth of Poland's economic output. Around 40 percent of those stocks are held on the Warsaw bourse.
The funds hold stakes in more than 60 percent of Warsaw-listed companies. Their average annual return rate of 9.5 percent has grown almost 2.5 percent faster than the Polish economy overall.
In a July report on Poland, the International Monetary Fund said that the proposed reform options are likely to reduce public debt and the fiscal deficit, but at the same time increase the government's future pension liabilities.
"Liquidity in the equity and government bond markets may be affected by the reduced presence of the pension funds," the report said.
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