Asset managers of Kazakh pension funds can invest in a broad range of securities, including 40% overseas, a generous ceiling by regional standards. “The main issue is that we can’t buy hedging instruments”, notes Alina Aldambergen. This has presented a problem in the last 18 months for foreign securities investment, however, because of the tenge’s rise. The currency appreciated by 8% in nominal terms against the dollar in 2003 and a further 5.07% in the first half of 2004.
At the same time, there is a marked lack of domestic investment opportunities. The A list of the Kazakh Stock Exchange lists 34 bonds of 41 emitters, and 40 equities of 24 emitters. “The equity market is still under development, so most funds don’t invest in them, while only about 50% of the listed bonds are liquid,” complains Zhanat Kurmanov.”Most of the A-list companies are banks, so they feature heavily in pension fund portfolios. Companies still prefer bank financing to issuing securities.” In addition, Kazakh eurobonds have been issued through special purpose vehicles, which are not permitted for pension funds.
Before 2003, when the tenge was still depreciating, the funds kept their bond portfolios short term. The maturities of the Ministry of Finance bonds that form a large part of pension fund portfolios have lengthened: the average tenor is five years but bonds of up to 10 years are available. The Ministry of Finance has not as yet issued instruments especially targeted at the pensions industry, but plans to next year with issue of between 15 and 30 years, which should enable the funds to obtain a better asset-liability match.
The currency’s strength has had a marked influence on pension fund portfolio structures. The total portfolio of all funds as of the beginning of this June comprised around 16% of Ministry of Finance and National Bank of Kazakhstan long-term tenge bonds, just under 1% in their foreign currency equivalent (compared with 11% and 17%, respectively, a year earlier), 33% in their short-term equivalent (22% a year earlier) and 25% in Kazakh non-state bonds (23% in 2003). Domestic equity investment remained relatively unchanged at around 4%. There was a marked reduction in foreign securities (including sovereign and non sovereign bonds, foreign equities and issues of international financial corporations), with the proportion down from 13% in 2003 to 8% a year later.

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