14/06/2010 08:18
According to the new investment policy prepared by the government, the Social Securities Fund will be able to invest its reserve in shares, bonds and properties. The relevant bill, released by StockWatch today, determines for the first time the quantity investment rules for the management of the Fund’s reserve of €6 billion and sets the institutional framework that the pension fund will operate in.
The Fund currently uses its reserves for state lending, receiving an interest rate of almost 4%. The state hopes to achieve better annual yields, boosting the viability of the Fund.
The preparation of the investment policy is a commitment since 2009, when the law for the increase in contributions had been approved.
The red lines
The new investment policy focuses on the setting of the main investment rules based on which the Cypriot or foreign fund managers will operate.
According to the draft law, which will be discussed with the social partners on June 25, the SSF will invest to “regulated markets mostly” and in derivates too, if this is imposed by the risk dispersion need.
The “indirect and direct investments in the financial means of businesses that face economic difficulties according to specific economic indices” are the red line for the Fund managers. Also, the Fund will not be allowed to invest in commodities.
Shareholder in banks
However, it will be able to invest in a business up to 5% of its capital under management.
The Fund will also be able to invest in bank deposits. With the new investment policy, “the maximum investment in deposits in a bank or Cooperative stands at 20% of the total investments of the capital under management in cash”.
Also, “the maximum investment in the bonds of an issuer stands at 10% of the total issued bonds of the specific issuer”.
The Fund will also be able to acquire up to 5% of the issued share capital of an issuer.
As for the properties, “the maximum investment in a specific property stands at 3% on the total capital under management”.
Apart from the investment policy, the draft also determines the institutional framework that will govern its operation.
The SSF leaders are the Council of Investments, which will comprise of 11 members, 4 ex officio, 5 representatives of social partners (OEB, CCCI, PEO, SEK, DEOK) and two individuals that are experts on the issue.
The 4 ex officio members will be the general managers of the Finance and Labour Ministries, the manager of the Social Securities services and a representative of the CB Governor.
The Council of Investments “determines the guidelines in relation to the investment policy of the capital under management”.
The guidelines will be given to the Investment Committee, which will comprise of three members appointed by the Council of Ministers after the Finance Ministry’s proposal and deliberations with the Council of Investments.
The Investment Policy will prepare the strategy report of the Fund.
The executive part of the Fund is the Investment Management – the third body that will be established on the basis of the bill. For the first five years, the members of the Management will be Finance Ministry officials with a proper experience and know-how.
The Management will propose the fund managers to the Council of Investments, will prepare the investment mandates, will observe the yields of the investments and will submit a report to the Council of Investments on a six-month basis.
The Council of Investments will appoint the fund managers from Cyprus or overseas through open bids.
The managers will deal with investments in financial means only.
For the properties, there is a different estimate procedure by at least two evaluators at the price that the average of the two will be, if there is no divergence exceeding 20% between them. If this is larger, a third evaluator will be used.
The procedure for the deposits in banks and Coops will be different.
The bill also includes a provision for the introduction o an internal audit committee, while the external audit will be carried out by the General Auditor.
The Fund currently uses its reserves for state lending, receiving an interest rate of almost 4%. The state hopes to achieve better annual yields, boosting the viability of the Fund.
The preparation of the investment policy is a commitment since 2009, when the law for the increase in contributions had been approved.
The red lines
The new investment policy focuses on the setting of the main investment rules based on which the Cypriot or foreign fund managers will operate.
According to the draft law, which will be discussed with the social partners on June 25, the SSF will invest to “regulated markets mostly” and in derivates too, if this is imposed by the risk dispersion need.
The “indirect and direct investments in the financial means of businesses that face economic difficulties according to specific economic indices” are the red line for the Fund managers. Also, the Fund will not be allowed to invest in commodities.
Shareholder in banks
However, it will be able to invest in a business up to 5% of its capital under management.
The Fund will also be able to invest in bank deposits. With the new investment policy, “the maximum investment in deposits in a bank or Cooperative stands at 20% of the total investments of the capital under management in cash”.
Also, “the maximum investment in the bonds of an issuer stands at 10% of the total issued bonds of the specific issuer”.
The Fund will also be able to acquire up to 5% of the issued share capital of an issuer.
As for the properties, “the maximum investment in a specific property stands at 3% on the total capital under management”.
Apart from the investment policy, the draft also determines the institutional framework that will govern its operation.
The SSF leaders are the Council of Investments, which will comprise of 11 members, 4 ex officio, 5 representatives of social partners (OEB, CCCI, PEO, SEK, DEOK) and two individuals that are experts on the issue.
The 4 ex officio members will be the general managers of the Finance and Labour Ministries, the manager of the Social Securities services and a representative of the CB Governor.
The Council of Investments “determines the guidelines in relation to the investment policy of the capital under management”.
The guidelines will be given to the Investment Committee, which will comprise of three members appointed by the Council of Ministers after the Finance Ministry’s proposal and deliberations with the Council of Investments.
The Investment Policy will prepare the strategy report of the Fund.
The executive part of the Fund is the Investment Management – the third body that will be established on the basis of the bill. For the first five years, the members of the Management will be Finance Ministry officials with a proper experience and know-how.
The Management will propose the fund managers to the Council of Investments, will prepare the investment mandates, will observe the yields of the investments and will submit a report to the Council of Investments on a six-month basis.
The Council of Investments will appoint the fund managers from Cyprus or overseas through open bids.
The managers will deal with investments in financial means only.
For the properties, there is a different estimate procedure by at least two evaluators at the price that the average of the two will be, if there is no divergence exceeding 20% between them. If this is larger, a third evaluator will be used.
The procedure for the deposits in banks and Coops will be different.
The bill also includes a provision for the introduction o an internal audit committee, while the external audit will be carried out by the General Auditor.
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