Armenia`s accumulation funds to be granted right to invest in real  economy 

ArmInfo. As a result of the easing of some restrictions, opportunities for Armenian pension funds to invest the population's funds in the real sector of the economy will be expanded. The National Assembly of the Republic of Armenia is discussing amendments to the law "On funded pensions" in the first reading at a plenary session on January 21.

As Deputy Chairman of the Central Bank of the Republic of Armenia  Armen Nurbekyan noted in his speech, currently there are limits on  investments for funds, which does not allow pension funds to fully  direct their funds to various investment projects, including  infrastructure development, as well as to finance other sectors of  the economy. Investment projects in Armenia are mainly financed  through non-public (not listed on the stock exchange) financial  instruments. At the same time, the opportunity to invest in non-  public (not listed) instruments is provided only indirectly through  other investment instruments, which limits the opportunity to invest  the population's pension savings in the economy, reduces the  efficiency of fund management and their ability to generate high  income.

The proposed amendments to the law will expand investment  opportunities for pension accumulation funds represented by two  companies - C-Quadrat Ampega Asset Management Armenia and Amundi-ACBA  Asset Management - by directing the funds' resources to finance the  RA economy through the use of various financial instruments. The  current law contains a provision according to which a pension fund  manager does not have the right to manage a specialized investment  fund. Meanwhile, there are sectors in the Armenian economy that  require financing, and these investment projects can be financed  through investment funds. At the same time, mandatory pension fund  managers have professional skills to manage various investment funds.  Therefore, the removal of legislative barriers will allow using these  opportunities, stimulating investments in the real sector of the  economy.

Currently, some investment limits set for pension funds have a  negative impact on the efficiency of their management. In particular,  the small limit on investments in equity securities - 25% for  conservative funds does not allow funds to take advantage of the  opportunity to ensure high and stable returns in the long term.  Now  it is proposed to increase this threshold to 35%. The law also  prohibits direct investments in non- public (unquoted) financial  instruments (allowed only indirectly through investments in other  funds with a maximum limit of 10%). In general, as Nurbekyan noted,  investment projects in the real sector of the economy can be financed  using various instruments: direct investments, when the pension fund  invests directly through the purchase of shares, bonds or other  financial instruments, including those unquoted on the stock  exchange, and indirectly, through other investment funds, which, in  turn, invest in projects.  However, according to the current  legislation, only indirect investments in non-listed instruments are  allowed, and financing of the real sector of the economy in Armenia  is carried out mainly through direct investments in non-public  (non-listed) instruments.

As a result, investment projects implemented in the economy remain  inaccessible to pension funds.  Therefore, it became necessary to  include direct investments in the 10% share of investments in  non-public funds, which would allow funds to jointly participate  directly in financing various investment projects in the real sector  of the economy.

In addition, according to the current law, the register of fund  participants provides beneficiaries with information about their  savings in paper form. But the problem is that a number of  opportunities have already been created for a citizen to choose a  pension fund online, change a fund, and receive additional  information by providing an e-mail. As a result, the requirement to  send information in paper form makes the administrative costs of the  system unreasonably high.

In 2023 alone, these costs amounted to about 50 million drams. At the  same time, about 1/3 of these costs did not justify themselves, since  paper reports did not reach the participants due to incorrect  addresses or other reasons. Therefore, the introduction of amendments  and additions to the law is aimed at exempting from the obligation to  send information in paper form, which will reduce administrative  costs.

The elimination of all these restrictions, the Deputy Chairman of the  Central Bank noted, will increase the investment opportunities of  Armenian pension funds.

The Deputy Chairman of the Central Bank also reported that about 65%  of all investments of the two management companies are directed to  government securities, the rest is represented in the form of bank  deposits and corporate securities. The funds also participate in the  purchase of shares during IPOs, but the funds' activity in this  direction is very limited and insignificant. Earlier, the CEO of  Amundi-ACBA Asset Management, Jean Mazejian, told ArmInfo that the  volume of assets managed by mandatory pension funds of Armenia  reached 2.2 billion euros or 10% of GDP. Meanwhile, in developed  countries, for example, in the Netherlands, the figure reaches 115%  of GDP.

From the moment the system was introduced until today, there have  been only two pension fund managers in Armenia who received licenses  from the Central Bank of the Republic of Armenia to manage pension  funds within the framework of the ONPS in 2013: C-Quadrat Ampega  Asset Management Armenia and Amundi-ACBA Asset Management. The  shareholders of the first are the Austrian investment company C-  Quadrat Investment AG and the German Talanx Asset Management. In  terms of assets (about 150 billion euros), Talanx Asset Management  GmbH is one of the largest insurance and financial groups in Europe,  represented in 150 countries. The shareholders of the second are the  French company Amundi (51%), which manages assets in excess of 2.2  trillion euros in 35 countries, and the Armenian Acba Bank (49%).

Management companies offer three investment models: stable income,  conservative and balanced.  According to the rules, the stable income  model assumes that assets cannot be invested in equity securities and  derivatives based on them; according to the terms of the conservative  model, the weight of equity securities and derivatives acquired for  the purpose of hedging them in the fund's assets cannot exceed 25%;  according to the rules of the balanced model, the weight of equity  securities and derivatives acquired for the purpose of hedging them  in the fund's assets cannot exceed 50%. Which of the specified  strategies is used to place funds, the participant of the system  decides for himself, and his transition from one model to another is  free once within one year. Those who did not initially make this  choice, the system automatically places in a medium, moderate risk  fund, that is, conservative. As the risk level increases, so does the  return on investment.