WARSAW, Poland -- Insurance companies have seized a commanding lead in the 2-month-old race to attract members to Poland's new private pension funds.
Currently, four insurance company-backed pension funds control 84% of the budding market, which is expected to pull in about $1 billion in assets this year and up to $2 billion in 2000, sources said.
To date, the leader by a wide margin is Commercial Union Investment Management Poland, a unit of London-based CGU PLC, which has attracted nearly 900,000 Poles.
Nationale-Nederlanden Polska, a joint venture between ING Continental Europe Holdings BV and BSK SA, the fund run by the Dutch insurance company, is in second place with about 580,000 members, sources said; and the fund run by Polish insurer PZU Zycie SA has about 550,000 members. Meanwhile, the fund run by American International Group Inc., Wilmington, Del., has pulled in about 300,000 members.
No dollar amounts are available yet for the funds.
"The insurance companies certainly benefited from their name recognition and the agent networks that they had," said Ronald Dwight, of counsel to Cameron McKenna, a law firm that helped created Poland's new pension legislation. "But it is not over."
In fact, only 2.7 million of an expected 6 million to 7.5 million Poles have yet to pick pension funds. Workers 30 and younger must select one of 19 pension funds authorized by the government by Sept. 30. Employees 31 to 50 have until Dec. 31 to choose to stick with the state system or switch to one of the funds.
Given the time remaining, some funds are changing their strategies to win clients, while others are teaming up with insurance companies.
Some players are only just entering the market, including a joint venture between Atlanta-based INVESCO Retirement and Benefit Services Inc. and the Polish Catholic Church, a powerful force in Poland.
The race may just be starting, but managers are already discussing consolidation. Nineteen funds are registered in Poland, and experts predict the number will begin shrinking early next year. "The cost per member is very high given how the system is set up," Mr. Dwight said.
Name recognition key
Under the mandatory private pension system that started April 1, employers pay an amount equal to 9% of a worker's salary to a private fund, while an amount equal to 36% of an individual's salary continues to go into the state pay-as-you-go system. Previously, Polish firms paid an amount equal to 45% of an individual's salary to the state-run system.
This year, about $1 billion should flow into the privately managed funds, an amount projected to grow to about $1.75 billion to $2 billion in 2000. By 2005, the funds should hold between $5 billion and $6 billion in assets.
The market size attracted international money managers and insurance companies such as Aetna International Inc., Hartford, Conn.; Paribas Asset Management Ltd., Paris; and Citigroup, New York, generally in joint ventures with domestic institutions.
Advertising budgets have been huge. Advertising Age estimates $150 million will be spent to lure clients.
While insurance firms have won over Poles, banks and other financial institutions have lagged. "People are choosing on the basis of the name awareness. People don't want to experiment with their retirement funds," said Iain Ainscow, director of CUIM Poland.
Fund officials don't reveal investment strategies in their advertising campaigns. Indeed, most are still devising them. The government heavily regulates how pension funds can invest so managers agreed there will probably be little difference in performance. Similarly, most funds are charging commissions of between 8.5% and 9%, so there is little to distinguish them in that arena.
Initially, funds considered charging commissions of up to 15%, but quickly abandoned that idea. "There was greater price sensitivity than we thought," said Tomasz Frontczak, general manager of AIG Comprehensive Pension Co., Warsaw.
Pioneer falls short
Pioneer International Financial Services president Alija Malecka said insurance companies set the tone in the advertising campaigns. Poles regard these new pension funds as insurance products more than investment products, she said.
Indeed, insurance company dominance made it more difficult for Pioneer to leverage its position as Poland's largest mutual-fund provider, with 280,000 clients.
Ms. Malecka declined to say how many pension clients Pioneer has attracted so far, but hopes to end the year with 400,000 to 500,000.
Insurers already had large sales forces, she said, while Pioneer sold many of its mutual funds through office-bound bank agents and brokers who are not allowed to sell the new pension products. "We all had to develop face to face agents," she said. Pioneer currently has 6,000 pension fund agents in Poland and hopes to add 2,000 by year's end.
Parent company Pioneer Group Inc., Boston, has agreed to sell 30% of the Warsaw-based subsidiary to Nationwide Global Holdings Inc., Columbus, Ohio, for $20 million.
Paribas' postal strategy
Jean-Baptiste Segard, head of Paribas' pension fund business, said the fund his firm jointly owns with the Polish Post Office has fewer than 100,000 members, a number he concedes is "not spectacular."
In late May the Poczypylion Pension fund was slated to launch an advertising campaign stressing Paribas' worldwide financial expertise.
Earlier campaigns have highlighted the fund's ties with the post office. Indeed, 30% of Paribas' 14,000 agents are mail carriers. The idea was that mail carriers could mention the fund to potential customers as they go about their jobs and make appointments for lengthier conversations after the postal workers finish their regular jobs.
He still believes the mail carrier angle is key to Paribas' success but added, "we need to focus more than we thought on our financial image."
INVESCO also chose to link with a respected Polish institution -- the Roman Catholic Church. The church owns 20% of INVESCO's new fund, which was set to begin marketing late May, after receiving its license on May 19.
"We are late," said Hubert Harris, chief executive of INVESCO Retirement and Benefit Services. "We didn't reach an agreement (with the church) until February. We didn't begin our discussions until last fall. Our partner -- the Polish Conference of Bishops -- is not used to doing business negotiations, so it was a lengthy process."
But there are restrictions on the relationship. As part of the deal, INVESCO will not invest in companies that are engaged in pornography, arms dealing or weapons manufacturing. The church is not allowed to solicit for the fund, and Polish law forbids it from giving or selling INVESCO its mailing list. Nor are there any assurances that the church's 50,000 employees will choose the INVESCO pension fund.
A sales agent, however, can consult with people in a particular parish about who might be interested in buying into a fund.