NPFs’ options for investing pension reserves expand
The Bank of Russia proposes to cancel a number of limits on pension reserve investment in certain securities and allow a greater portion of higher-risk assets. These easing measures will be balanced out by stricter requirements for passing stress tests as well as by current regulations on fiduciary responsibility of non-governmental pension funds (NPFs).
In particular, the Bank of Russia’s draft ordinance released for public discussion cancels common limits on investment in shares, convertible, subordinated and perpetual bonds, as well as securities of Russian constituent territories and municipalities. Furthermore, the document expands the list of shares that NPFs may purchase beyond the risk limit. Currently, NPFs can buy shares of 47 Russian companies listed on the MOEX Russia Index. The draft suggests extending the list to include exchange-traded liquid shares whose issuers have a credit rating, i.e. shares of around 60 companies. This will boost NPFs’ participation in the equity market.
The percentage of assets with an additional level of risk is raised from 7% to 15% of the value of pension reserves, and this category will now comprise all assets that are difficult to evaluate.
Broader investment opportunities of NPFs will improve their efficiency, while ensuring high financial resilience and protecting pension resources from excessive investment risks.
In addition, the Bank of Russia suggests reducing the limit on investment in the assets of one entity (one group of entities) from 10% to 5% by 2030. This amendment is aimed at decreasing the concentration risk and allows NPFs to further diversify their investment portfolios.