INVL Asset Management, one of Lithuania’s leading asset management companies, has established 2nd pillar pension funds based on a life-cycle investment strategy. The company will offer accumulation in these funds starting 2 January 2019. It plans to transfer clients who are already now accumulating in the 2nd pillar to the new funds as of 1 February 2019 based on their date of birth.
The new funds were established on the basis of reform to the country’s pension system, according to which as of 2019 people will accumulate in the 2nd pillar in life-cycle funds. INVL Asset Management was granted a permission to establish the new funds by the Bank of Lithuania on 17 December.
What makes saving in life-cycle funds different is that the people accumulating in them no longer have to worry about changing funds – the funds themselves will change their investment strategy based on participants’ age, thus avoiding accumulation in a fund with an unsuitable investment strategy as it was not changed according to age.
“The new life-cycle funds will let people in Lithuania save money for retirement more easily. For our part, in creating the funds’ investment strategy, we’ll continue to seek the best possible results for clients. We believe that is ensured not just by our analysis of long-term markets changes, but also by our experience successfully managing pension funds ever since they were first launched in 2004,” said Laura Križinauskienė, CEO of INVL Asset Management.
INVL’s life-cycle funds will invest in equities until participants reach age 48, at which point, with 17 years left until retirement, they will start to reduce the equity portion. When investing in equities, investments will go to shares and other riskier asset classes, such as real estate or other alternative assets. Although such assets’ value is more volatile, over the long term they let you earn more. When investing in bonds, the older participants are, the more investments will be allocated to this asset class, which is less risky and make it possible to reduce fluctuations in the value of accumulated assets.
Altogether, seven INVL life-cycle pension accumulation funds have been launched. Their names reflect participants’ dates of birth: INVL Pension 1954-1960, INVL Pension 1961-1967, INVL Pension 1968-1974, INVL Pension 1975-1981, INVL Pension 1982-1988, INVL Pension 1989-1995, INVL Pension 1996-2002. Also established is the INVL Pension Asset Preservation Fund, which will invest the money intended for periodic pay-outs belonging to people who have reached retirement age. Those who wish to change the pension fund assigned to them on the basis of their age will be able to do so by submitting a request to the pension accumulation company.
“When investing in equities, we’ll continue to look for opportunities on a global scale, trying to reproduce global equity returns as effectively as possible and so grow pension fund participants’ assets. We’ll also allocate up to a fifth of these investments to the Baltics and Central and Eastern Europe, aiming here for a return bigger than that on global equities. Meanwhile, in funds whose participants are nearing retirement, we’ll seek to safeguard the accumulated assets and protect it against inflation,and so direct investments in bonds will dominate here,” said Vaidotas Rūkas, the Chief Investment Officer.
An investment model like this, he said, makes it possible to ensure an extremely wide range of equity investments and take advantage of undervalued companies in our region or real estate, noting also that investing in bonds directly is more efficient than investing through bond funds.
The management fee for accumulating in life-cycle funds will be gradually reduced. In 2019 it will be 0.8 per cent and in 2020 it will be 0.65 per cent, until as of 2021 it reaches an annual asset management fee of 0.5 per cent. For the asset preservation fund, meanwhile, the management fee will be just 0.2 per cent.
According to Bank of Lithuania data for the first three quarters of 2018, the performance of INVL’s pension funds for the past 5 years in terms of average annual return was the best in the country in most pension fund categories, and for the past 10 years it was the best in all categories, not taking into account life-cycle funds in existence until now. The company’s 2nd pillar fund INVL Mezzo II 53+ was recognized at the 2018 IPE Awards for European pension funds as the best pension fund in the Central and Eastern European Funds category.
The life-cycle funds will replace the 2nd pillar funds that INVL has operated until now: INVL Extremo II 16+, INVL Medio II 47+, INVL Mezzo 53+, and INVL Stabilo II 58+. The company will cease offering accumulation in these funds as of 24 January 2019.
INVL Asset Management has been managing pension funds since 2004. Until now the company managed four 2nd pillar and five 3rd pillar pension funds. At the end of November 2018, there were 132 500 participants of INVL’s 2nd pillar funds and 10 200 participants of its 3rd pillar funds, with EUR 369.6 million of assets under management in the 2nd pillar and EUR 25.1 million in the 3rd pillar.
INVL Asset Management is part of the Invalda INVL group, whose companies manage pension and mutual funds, alternative investments, private equity assets, individual portfolios and other financial instruments. They have more than EUR 650 million of assets under management, entrusted to them by over 190 000 clients in Lithuania and Latvia as well as international investors.