Interview of “Capital Asset Management” Investment Company’s CEO Tigran Karapetyan to Mediamax Agency and Banks.am portal

- It is known that “Capital Asset Management” intends to put investment and pension funds of a few types into operation next year. Are there all the necessary perquisites for these funds?

- Our intention to put investment and pension funds into operation becomes possible due to approval of the corresponding package of draft laws, which is on the agenda of the parliament at present.

As is it known, the government made a decision to delay compulsory component of the accumulative pension system till 2014, and starting from January 2011, it will become possible to put voluntary accumulative schemes into service. Pension reforms are complicated and, probably, it is good that before introduction of the compulsory component, they plan a certain “testing” period, during which the society will be able to familiarize with the activity of different managers, the range of services, provided by them, and the government, in its turn, will get some time to reveal system problems that this system faces, define the strengths and the weaknesses of reforms, make changes, for instance, in requirements towards the managers. In 2014, the country will be to a greater extent ready to implement compulsory accumulative schemes.

Along with establishment of legislatively fixed opportunities, two managers will launch their activity in “Capital Asset Management” system: one of them will put into operation two types of investment funds, and the other one – two types of pension funds.

- Let’s start from the second. What pension funds are planned to be set up and what will their activity represent?

- We want to put two types of voluntary pension funds with moderate level of risk into service. One of them will be conservative, and the other one will be based on fixed income. 25% of the assets of the first pension fund will be invested in stock securities, and the remaining 75% - in debt tools. The assets of the second fund will be fully invested in debt securities. 

50% of the conservative pension fund’s assets, including the entire volume of investments into stock tools, are suggested to be invested in foreign securities. The share of foreign investments in the assets of the second fund will make 30%.

Pension schemes targeted at Armenian employers will function within the framework of the two funds. We try to prove to Armenian employers that such schemes may increase efficiency of their employees’ work.

The voluntary accumulative scheme, suggested by us, provides for the fact that the employer, within the framework of his corporate-social responsibility, takes upon himself the commitment to pay the future pension of his employees. According to the scheme, the employer sends up to 5% of the salary to the pension accounts of its employees every month. Simultaneously, up to 5% of the salary will be transferred to the pension accounts by the employees as well. That is to say, the employees of the employer will open pension accounts and will acquire shares of two types of pension funds, depending on a fund of which degree of risk a particular employee will choose. At that, there will be no age limitation here. That is to say, both the 20-year-old and the 60-year-old employees will get the chance to use the provided opportunity.

This may become an additional stimulus for employers, since it will allow them acquiring a special positive social image in business environment. By the way, the state has provided for tax benefits for employers and employees to be interested in participating in voluntary accumulative schemes. For the employer, this is reduction of the income tax by means of deducting the pension payments from the taxable profit, and for employees this is the reduction of the income tax.

The most active role within the framework of the system being formed belongs to the managers of pension funds. It is obvious that at the initial stage their role will be not only the professional management of assets, but also the functions on public information, education and increase of efficiency of business administration. At that, in the course of time, the types of pension funds will expand. According to my most preliminary assessments, in 3-4 years, 10-15 types of investment and pension funds with various investment strategies will be functioning in Armenia.

- Now let’s turn to investment funds, which are being set up by you.

- Our other manager will also put into service two funds. The first will be the so-called mutual investment fund, which will be publicly attracting public funds and placing them in securities. The essence of mutual funds is the issue of shares, which are bought by potential investors. The means are mobilized in the fund, the assets of which, basing on the corresponding investment declaration, are invested in various securities. Taking into account the limitation in composition and structure of Armenia’s financial tools, we intend to send a significant volume of investments to global financial markets, especially to markets of developing countries, which demonstrate quite attractive post-crisis growth. Our goal is to create a platform, where the Armenian investor will be able to use the results of profitability of global financial tools.

Simultaneously, we plan to invest 50% of the attracted means into Armenian financial tools, which circulate on “NASDAQ OMX Armenia” Stock Exchange.

One half of the total volume of investments will be made in share and the other half – in debt tools. At that, about 90% of share investments will be directed at global markets, and as to the share securities, preference will be given to the Armenian market.

We also realize that investments can be attracted only in case if the potential investor is sure of their liquidity. Aiming at this, we, most likely, will also launch the so-called interval fund, which is also one of the types of investment funds. Difference of the interval fund from other investment funds is that its securities are subject to regular buyout in previously established internal terms. At that, the buyout is realized by means of the current net assert value.

Interval funds will also solve the problem of securities, nominated in foreign currency, since, as it is known, the issue of the latter is banned in Armenia. A particular share of assets of the interval investment fund will be invested in global financial markets and, being related to foreign currency, will keep the shares of investors away from possible AMD depreciations.

- The society is not well aware at present on investment companies, and no funds exist yet. How will the citizens be informed and how will they be attracted to accumulative schemes? It is also assumed that citizens will be able to control management of their assets. How will this happen?

- A significant role in informing is played by companies, which intend to set up funds and manage pension assets. It would not be correct if the entire load of information was on the government only. We, in particular, plan to organize a number of such measures: if a particular employer wishes to join the voluntary accumulative schemes, we will organize a number of seminars for its employees, during which our specialists will present all the terms of pension asset management in detail. 

Concerning getting information on asset management, I will state that each manager of the pension fund should allocate all the necessary resources in order to form a reporting system. These systems represent computer programs, operating online, by means of which at any moment one can receive information on one’s pension accounts.

- Let’s say, the value of assets of one manager increased by 5%, and the other’s – by 15%. Does this mean that the pension of citizens, who cooperate with the second manager, will make more as a result?

- Yes. However, a number of factors should be clarified here. Voluntary accumulative schemes, launched by means of funds, do not guarantee a fixed volume of future pensions. As a result, you get the volume that has been accumulated on your pension account, plus the incomes, received as a result of accumulated means’ management.

But there is also another scheme, which is being launched by insurance companies. I will remind that the pension scheme of the third level provides for the fact that management of assets may be realized by three types of institutions: banks, pension funds and insurance companies. In case of banks, the citizen transfers means to the special accumulative account.

Of interest is the system, which is provided by instance companies: irrespective of the volumes of deductions and incomes, received as a result of their management, the insurance company commits itself to paying a fixed and beforehand defined pension, taking upon itself all the risks coming from this. If, for instance, in 10-15 years a global financial crisis happens again, and the assets of the company become significantly less in cost, the company will have to compensate for the difference at the expense of its own means. At the same time, the incomes from them will be left to the insurance company. The accumulated means of a person, who does not live to the pension age, will also become the property of the insurer, while in case with pension funds and banks, these means are heritable. 

- Pension funds will not have the right to invest assets in precious metals and stones, neither in real estate, and it will be allowed to invest them in financial tools of Armenia and the Organization for Economic Cooperation and Development (OECD) countries. Are the criteria chosen correctly? 

- Pension funds are of social importance, and, consequently, countries try to limit investment fantasies of managers. It is obvious that pension assets will be less profitable than the asses of investment funds. No matter how long we discuss this topic, we will anyway come to the classic axiom: the correlation of risk and profitability: the larger the risk, the more the profitability, and vice versa.

The capability to invest in securities of OECD countries reminds that the managers will have to send assets to places, where the capital markets have already reached a particular level of development.

And the chosen criteria are revised constantly and the processes of revision are accelerated during crises. There are countries, where pension assets can be directed to venture funds, real estate and precious metals.

- How justified is that?

- At present, for instance, investments in precious metals are justified. About 10-15 years ago, venture investments were the ones justified, especially in the years of impetuous growth of IT industry. At that time, pension funds also participated in venture funds.

I believe that the Armenian managers of pension funds need to be provided legislative opportunity to send up to 10% of assets to production tools, which will be related to gold, wheat, oil or other assets: meanwhile, according to the package of draft laws, approved in first reading, investments in production tools can be made exclusively for hedging purposes (insurance of currency risks).