MOSCOW - President Vladimir Putin is facing a dilemma over the 3.5 billion ruble ($114.4 million) Pension Fund of the Russian Federation, Russia's biggest state-sponsored pension plan.
He knows that to deliver long-term real returns for the 62 million members of the Moscow-based scheme, it must invest with private money management firms. But he is battling with vested interests keen to ensure management of the scheme's assets remain in state hands.
Despite the announcement that the plan on July 16 will publish requests for proposals for private money management firms, investment industry insiders are worried the tender will once again be delayed.
The tender process originally was meant to be completed this year, with members receiving letters informing them of the private investment options by July. Alexander Podenok, labor and social development minister, said with the RFPs going out in July, members now would receive the letters by October.
"It's been delayed for so long, and the timetable's not realistic. To have scheme members begin choosing asset managers by January next year just won't happen," said Dmitry V. Larin, a director of PIOGLOBAL Asset Management, Moscow, one of the country's largest money management firms.
But members of the investment community support the outsourcing move, and not just because of business opportunities.
According to one local money manager, who declined to be identified, a yet-to-be-published Audit Chamber report, handed to anti-corruption 1st Deputy Minister Mikhail Dimetriev on May 8, found pension fund money had been used to purchase securities at inflated prices.
"Any time you get a pool of capital in Russia, the system is untransparent enough so that you can use it (for personal gain). That's why I think it would be better to have transparent management firms doing this," the money manager said.
Officials at the pension fund and the Ministry of Labor are drafting the RFPs, which will include final rules on which firms are eligible to apply.
But executives at many firms are critical of how the process has been handled.
"I think it's kind of ridiculous that members are meant to be choosing which firms will manage their accounts in a matter of months, and we don't even know what the criteria is for getting licenses and applying to the pension fund," said Florian Fenner, managing partner with UFG Asset Management, Moscow.
Others suggested the scheme had not even made purchasing decisions for information technology capable of processing 62 million letters that would need to be sent to participants about their choices and the subsequent replies. Even if the scheme did manage to send out the letters, Alpha Bank, a retail bank, estimated Russia's postal system would be incapable of ensuring delivery to all participants. According to a research report by the bank, such a mailing would triple or quadruple the postal system's average monthly volume.
On top of that, if the process is delayed much further, it might be sidetracked by the March 2004 presidential election, which Mr. Putin is expected to win.
Much of the criticism for the delays is being leveled at Mikhail Zurabov, chairman of the board of the pension scheme and founder of the MAKS insurance company, Moscow.
Investment industry experts note Mr. Zurabov has opposed the outsourcing process from the beginning.
"I think he (Mr. Zurabov) really wants to be master of the universe. He wants to manage the money himself, and I don't think that would be good for the market and the asset management business in general," said Maria N. Churaeva, chairwoman of PIOGLOBAL Asset.
Mr. Zurabov did not attend a recent speaking commitment, at which he was to update money managers on the tender process. His office did not return phone calls by press time, and efforts to contact him through other government departments, including the Department of Labor, were not successful.
Observers said Mr. Zurabov has been conjuring an image that state management of the funds is the safest option.
"He's given a number of interviews where that's been the message. He's not impartial at all, he definitely wants people to do nothing and leave their accounts in the default option," which is continued internal management, said Mr. Larin.
"It isn't fair that we are competing with the people who are running the process," said one money manager, who declined to be named.
Appointed to the post in May 1999, in the last days of the Boris Yeltsin presidency, Mr. Zurabov had been a presidential adviser since 1996 and was regarded by many as among the closest of Mr. Yeltsin's inner circle.
The scheme presently allocates about 24 billion rubles in annual pay-as-you-go transfers to regional governors, who administer pensions for individuals in each of the more than 80 provinces.