The Bulgarian Pension Funds Association (BPFA) called for legislative changes that would put pension funds on track to becoming a favourite investment vehicle for local and foreign clients. The association presented a package of amendments to the Social Security Code on December 16.

The changes, aimed at ensuring a higher return on investment through greater freedom to chose the types of investment, come a year after a related package was signed into law. The relaxations of the past year saw pension funds, operating under mandatory universal, supplementary and vocational schemes, double the size of their portfolios and increase their exposure to riskier types of investment.

The incumbent BPFA bill represents the second legislative step intended to offer pension fund managers further options in investment. The association believes that pension funds should enjoy a higher cap on investments in equity, both locally and abroad. The cap should grow from 20 to 30 per cent. To achieve a good return while keeping risk at bay, the ceiling should be segregated to 25 per cent for existing shares and five per cent for equity in initial public offerings (IPOs), according to the association.

The change would allow pension funds to further capitalise on the continual growth of the Bulgarian Stock Exchange as well as ensure higher liquidity for pension fund portfolios as a whole.

In addition, the amendments would mirror existing reality as a number of pension funds already circumvent the existing ban on IPO investment through new share buy-in through clients, according to sources familiar with the market.

The amendments would also provide for a market-driven, and therefore natural, shift in the structure of portfolios of pension funds’ assets. Market dynamics over the past two years have witnessed the continual decrease in the offer of state- and municipality-issued notes and bonds, which has gone hand in hand with the concurrent rise in equity offer.

The association believes that the changes to the Social Security Code will help increase appeal in all kinds of pension investment schemes and ensure that the assets of pension funds keep on growing in the years to come.

The trend has been on the increase for a while, the Financial Supervision Commission said.