MOSCOW - The Russian government has kick-started its nascent pension and investment management industry.
The executive branch has decreed the roughly 800 billion to 1 trillion ruble ($180 million to $220 million) private pension fund assets must be managed by external managers. Now, about 90% of Russia's 800 pension funds are managed internally.
In a second presidential decree, the government has authorized the creation of mutual funds in Russia, creating a huge opportunity for investment managers to tap into the estimated $20 billion in assets individuals have tucked away.
However, in Russia, things are never as simple as they seem. The Russian Parliament has the power to override the decrees through legislation. A current draft of a pension bill awaiting introduction in the Duma would allow pension funds to invest internally or through external managers.
"If tomorrow, MPs decide to pass this bill just to gain more votes in the December parliamentary elections," then governmental regulations would be canceled, explained Mikhail Aliokhin, general director of Kogorta, an investment company in Moscow.
Still, issuance of the decree is an important step for the unregulated Russian pension fund industry. The decree will permit the Inspector of Non-Governmental Pension Funds, a regulatory agency, to issue rules governing pension funds, their participants and money managers.
Importantly, those rules will cover both investment restrictions and capital requirements for Russian pension funds. Russian pensions are somewhat akin to insurance pools, open not just to a company's employees but also to other individuals. Now, one-third of Russia's 800 funds are commercial joint stock companies that accept deposits from individuals. Their status will have to change, because the decree does not permit commercial companies to function as pension funds.
Pension funds and money managers will have to be licensed by the inspectorate. Chief Inspector Yuri Volkov said licensing applications will be ready by mid-September and the first license could be obtained by the end of October. Pension funds' accounts will have to be reviewed by independent auditors to qualify. He added pension funds will be barred from investing in the sponsoring company, a widespread practice.
Tax issues, however, will not be dealt with under the rules. According to the State Tax Service, both contributions and benefits payments will be included in an individual's taxable income. It will take a newly proposed tax code that may win the Duma's approval at year end to resolve this.
Meanwhile, the government has required investment companies be converted into licensed mutual funds. Some 750 investment companies now operate without any form of licensing. The licensing should cut down on pyramid schemes that have been perpetrated on Russian investors.
Licensed companies also will be required to provide investors with financial statements and redeem accounts within 15 days.