Financial Supervision Authority checks compliance with rules on investing into conservative pension fund assets
The Financial Supervision Authority performed inspections at all pension fund management companies to verify whether and how legal requirements are being met with regard to investment into conservative pension funds’ assets. The restrictions established by law on the risks that can be assumed in investing into conservative pension funds are the most stringent.
As a result of the inspection, the Financial Supervision Authority found that investment into the assets of these pension funds complied with the requirements set forth in the Investment Funds Act. Conservative pension funds may not invest into equity. With regard to investing into bonds, they face a range of additional restrictions; these pertain to the level of credit risk of the bond issuers. Every instrument in a conservative pension fund and instruments prospectively to be added to the portfolio must be assigned a credit rating. The long-term credit ratings from S&P, Moody’s and Fitch are used to assign these ratings. Conservative pension funds may invest only into bonds whose credit rating is at least Moody’s Baa3 or S&P’s BBB-. In addition, compulsory pension funds must invest at least 50% of their assets into bonds whose rating is even higher: Moody’s A2 or its equivalent at S&P or Fitch.
In the course of the checks, the Financial Supervision Authority verified that the management companies’ organisational and technical solutions were sufficient for compliance with the aforementioned requirements. In Estonia, compulsory pension funds are currently managed by Danske Capital AS, AS LHV Varahaldus, Nordea Pensions Estonia AS, AS SEB Varahaldus and Swedbank Investeerimisfondid AS and their conservative-strategy pension funds are, respectively, Danske Pension Intress, LHV Pensionifond XS, Nordea Pensionifond 2P1, Nordea Pensionifond C, SEB Konservatiivne Pensionifond and Swedbank Pensionifond K1.
During the inspections, ERGO Funds AS also managed mandatory pension funds; on 1 September ERGO handed management of its pension funds to Nordea. The pension assets in ERGO’s funds were merged on 1 October 2014 on a client by client basis with the Nordea pension fund with a strategy and risk level similar to the one used by the respective client.