An increased allocation to equities has helped Romanian pension funds – including the RON5.3bn (€1.17bn) ING fund – to their strongest returns in three years.

According to statistics compiled by the Romanian pension fund association APAPR, the average return for 2011 was 11.75%, while the annualised average since inception in 2008 now stands at 11.5%.

Investment returns contributed RON2.6bn to the system last year, while contributions added RON11.3bn, bringing the total value of assets in the second pillar to RON14bn.

The largest pension fund in the mandatory system, the ING pension fund, returned 11.29% – just below the average.

Raluca Tintoiu, chief executive at the fund, told IPE it wanted to increase its exposure to equities in 2014, “taking into account a potential decrease in fixed income instruments’ yields”.

This is an ongoing trend across the system, as Romanian pension funds in general have boosted their equity exposure since 2013. Equity allocations now exceed 12% on average, up from 3% just after the financial crisis in 2009.

The APAPR added that Romanian pension funds also made major investments in all of the government’s IPOs and SPOs last year.

“Overall, 95% of the pension funds’ assets are invested locally, with only 5% foreign exposure,” it said.

Tintoiu said she would like to see more flexibility in regulation to allow pension funds to invest in alternative asset classes such as real estate and OTC-traded corporate bonds, among other things, as this “could benefit our pension plan members on the long run”.

Contrary to many other countries in the Central and Eastern European region, where governments have expropriated funds in the second pillar, Romania has increased the contribution level to 4.5%.

Tintoiu said she was convinced the government would not change this.

“We read this as a sign of a better general understanding for the need to support and develop the second-pillar system, on behalf of both the authorities and opinion leaders – be they think tanks, analysts or academics.”

She conceded that strong annual returns also made it harder to criticise the system.

Tintoiu pointed out that, according to Romanian legislation, participation in the second pillar gives plan members ownership rights protected by the Constitution.

“The likelihood of nationalisation is very low,” she said, “as long as authorities respect the current legal framework.”

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