According to a report published by the Financial Supervision Authority in the summer of 2011, the total value of pension funds operating in Estonia is approximately 1.2 BEUR, of which mandatory pension funds make up approximately 1.11 BEUR and voluntary pension funds approximately 90 MEUR. Today, a company also has the option of raising additional capital via pension funds, for instance, by issuing stocks or bonds.
That said, the law and investment requirements and constraints resulting from the terms of each specific pension fund have to be followed. Below is a sample list of applicable restrictions (percentage of the total market value of pension fund assets):
|Restrictions provided by law||Mandatory pension funds||Voluntary pension funds|
|Stocks and stock funds||up to 75%||none|
|Stocks issued by one entity||up to 5%||up to 10%|
|Bonds issued by one entity||up to 5%||up to 10%|
The assets of a conservative pension fund (funds whose assets are invested in bonds, money market instruments, deposits and other similar assets only) may be invested only in bonds with at least an investment grade rating, that is, whose credit rating is not below Baa3 (Moody’s) or equivalent. In addition, a conservative pension fund is forbidden to invest its assets in funds whose assets are invested in bonds with a rating below investment grade. If an issuer or security has been awarded different credit ratings by different rating agencies, the lowest of the ratings in effect will be considered.
In the light of the above, pension funds hold one possible and attractive alternative through which a company may raise additional capital for its operations. Behind the above percentages lies a significant investment opportunity. Based on disbursements from pension funds, as compared to contributions to them, the value of pension funds is going to be rising for several years to come.