Federal Law No. 111-FZ dd. 24 July 2002, "On Investing Funds to Finance the Funded Component of Retirement Pension in the Russian Federation"
Resolution by the Russian Government No. 34 dd. 22 January 2003, "On Designating the Bank
for Foreign Economic Affairs of the USSR (Vnesheconombank) as State Trust Management Company for Pension Savings"
Federal Law No. 360-FZ dd. 30 November 2011, "On Procedure for Financing Payments Drawing on Pension Savings"
Resolution by the Russian Government No. 503 dd. 14 June 2013,
"On the Term of State Corporation 'Bank for Development and Foreign
Economic Affairs (Vnesheconombank)' Acting
as State Trust Management Company for Pension Savings, and State Management Company
for Payment Reserve Resources"
Vnesheconombank was delegated the functions
of a state trust management company
for the pension savings of the insured citizens of the Russian Federation and a state management company for the payment reserve resources.
It is important to note that the funds under the management of Vnesheconombank are invested in strict compliance with the effective laws of the Russian Federation and on the arms length basis.
In 2014, the major focus of Vnesheconombank as the state trust management company (STMC) was on honouring its commitments on repaying pension savings to the trustor, i.e. the Russian Pension Fund, as well as ensuring positive yield on the investment portfolios formed drawing on the pension savings and payment reserve.
The results of the STMC investment activities in the reported period were adversely impacted by a significant drop in the market value of the federal loan bonds (OFZs) and corporate bonds due to a 3-fold increase of the key interest rate by Russia's Central Bank against the backdrop of the economic downturn and high inflation expectations in the Russian economy.
Over 2014, the average market yield on OFZ and non-government bonds comprising the investment portfolio of STMC grew by 640 and 400 basis points, respectively.
Vnesheconombank uses the pension savings of the citizens of the Russian Federation who have not exercised their right to choose a private pension fund or a private asset management company, or have opted for a state management company, to form an extended investment portfolio and an investment portfolio of government securities.
The investment declaration of the extended investment portfolio allows Vnesheconombank to invest pension savings in government ruble- and foreign currency-denominated securities, securities of the Russian Federation constituent entities, Russian corporate bonds, mortgage securities and securities of international financial institutions, deposit such funds with credit institutions, and place them in ruble and foreign currency accounts with credit institutions.
Throughout 2014, the Russian Federation Pension Fund (the RFPF), transferred to STMC RUB 2.6 bn worth of funds to form the respective portfolio. The funds repaid to the Russian Federation Pension Fund in the reported period amounted to RUB 14.5 bn.
Over the reported period, one of Vnesheconombank's key tasks was to repay to the RFPF some RUB 390 bn worth of resources in order to honour the applications by the ensured citizens wishing to switch to a non-governmental pension fund or opting for an investment portfolio of an asset management company. To accomplish the task, Vnesheconombank conducted 4 auctions that resulted in RUB 267 bn worth of deposits with credit institutions, which is a 18.7% increase on the previous year (RUB 225 bn). An average weighted interest rate on the deposits was running at 11.70% (in 2013 — 7.89%).
The funds invested in 2014 in non-government
bonds totalled RUB 127.7 bn at market
value as at the date of purchase (accrued
coupon income not included). In particular,
at the initial placement, Vnesheconombank
invested RUB 50 bn worth of the funds of
the extended portfolio in the bonds of OJSC
Russian Railways, and RUB 37.5 bn — in
mortgage-backed bonds. Over the year under
report, the total amount of non-government
in the extended investment portfolio at market value (accrued coupon income not included) increased from RUB 667 bn to RUB 710.2 bn.
The government securities in the extended investment portfolio amounted to RUB 126.8 bn at market value (accrued coupon income excluded).
The market value of the extended investment
portfolio over 2014 increased
from RUB 1,854.6 bn (as at year start) to RUB 1,892.3 bn (as at the year-end).
At year-end, the return on investment of pension savings comprising the extended investment portfolio made 2.68% p.a. The major factor responsible for the investment results in 2014 was a significant decline in OFZ market value. The negative revaluation of OFZs made (-) RUB 62.9 bn.
Structure of extended investment portfolio, %
In conformity with the Investment Declaration
of the government securities portfolio
(GSP), pension savings may be invested
in government ruble- and foreign currency denominated
securities, Russian corporate
bonds backed by state guarantees of the
as well as placed in ruble and foreign currency accounts with credit institutions.
In 2014, no funds were transferred by RFPF to GSP, with RUB 169.5 mn worth of funds repaid to RFPF.
Over the period under review, the GSP market
value decreased from RUB 10,938.6 mn
to RUB 10,535 mn.
At year-end, return on investment of GSP made (-) 2.05% p.a.
Major factors behind the negative return
on investment of the portfolio included
in the market prices for OFZs and other Russian bonds, and a very insignificant size
of the initial offering of bonds against the guarantees of the Russian Federation.
Government securities investment portfolio, %
In 2014, the Russian Federation Pension Fund transferred to Vnesheconombank RUB 1.4 bn worth of payment reserve resources and RUB 149.8 mn worth of pension savings of insured citizens entitled to term pension payments, to be held in trust and to form a payment reserve portfolio and a term pension payments portfolio, respectively. Over the reporting period, the amount of funds repaid to the Russian Federation Pension Fund under the portfolios mentioned made RUB 1,12.7 mn and RUB 18.8 mn, respectively.
In 2014, the payment reserve portfolio
(at market value) increased from
RUB 1,371.1 mn
to RUB 2,562.5 mn. The amount of the term pension payments portfolio grew 2-fold
from RUB 123.2 mn to RUB 247.7 mn.
The share of top-quality and higher yield corporate bonds (as compared to OFZs) and bonds of Russian constituent entities in the payment reserve and term pension payments portfolios increased from 35.48% and 35.55% to 49.03% and 44.58%, respectively.
At year-end, the return on investment of the payment reserve and term pension payments portfolios made (-) 2.96% p.a. and (-) 2.69% p.a., respectively.
Negative return on investment of the portfolios
was brought about by a significant
in the market prices for Russian bonds and, primarily, OFZs accounting for approximately 59% in the payment reserve and term pension payments portfolios as at the beginning
of 2014, and 37.7% and 31.2% (respectively) — as at the end of 2014.
Structure of payment reserve portfolio, %
Structure of portfolio of pension savings of the ensured citizens entitled to a term pension payment, %