Investment and pension fund market

As at the end of 2022, assets under management of domestic investment funds were above PLN 266.3 billion, compared to 301.7 billion at the end of 2021, representing a decrease by 11.7%.

Source: IZFiA

The year 2022 in the global economy was marked by severe turbulence due to the outbreak of war in Ukraine and a rise in inflation to levels not seen in many countries for 40 years. These two phenomena and their economic consequences have negatively affected all asset classes. In terms of the global market, both equity market-based and bond marketbased strategies produced relatively high losses. In the domestic investment fund market, we saw a high value of withdrawals by clients (nearly 24 billion in negative sales) combined with a high discount in the value of assets remaining in the funds. In total, the investment fund market shrank by more than PLN 35 billion by the end of 2022.

 

The net asset market value of the target date funds operated by TFI under the Employee Capital Schemes totaled over PLN 10.3 billion at the end of 2022, compared to PLN 6.5 billion at the end of 2021, an increase of 58%.

Source: KNF, net asset value of FZD according to management institutions, data for TFI only, without PTE and TU

 

The net asset value of ECS target date funds for the entire market, i.e. those run by TFIs, PTEs and insurance companies, rose to nearly PLN 12 billion at the end of 2022, compared to PLN 7.7 billion at the end of 2021. The increase was due to the continuation of the program. In 2021, all employers were required to create an Employee Capital Scheme. In 2022, further contributions from employees (2-4% of gross remuneration), employers (1.5-4% of employee gross remuneration), as well as welcome (PLN 250) and annual (PLN 240) surcharges from the state, were regularly paid for the ECS.

Pension funds market

At the end of 2022, the net assets of open-ended pension funds amounted to more than PLN 156 billion, a decrease of 17% compared to the end of 2021. The decline in asset values was mainly influenced by the war in Ukraine, which affected investor behavior. For the most part of 2022, there was a lot of volatility in stock markets. The indexes saw significant declines in 9 months. It was not until the fourth quarter that there was a significant rebound, allowing the indexes to recover more than half of their losses.

Source: KNF, monthly data on the OFE market, data for December 2022

Voluntary Pension Funds

Despite high volatility on the equity market in 2022, assets of voluntary pension funds rose to more than PLN 1.2 billion at year-end. A significant impact on the value of assets came from current contributions, which amounted to nearly PLN 120 million in 2022 at DFE PZU.

Activity and product offering

Towarzystwo Funduszy Inwestycyjnych PZU (TFI PZU) operates on the investment fund market in the PZU Group. TFI PZU offers products and services for retail and institutional clients. It also operates investment and saving programs under the third pillar of the social security system:

  • Individual Retirement Accounts (IRA) and Individual Retirement Security Accounts (IRSA);
  • Employee Savings Plans (ESP);
  • Employee Pension Schemes (EPS);
  • Employee Capital Schemes (ECS);
  • Group Pension Schemes (GPP) and the Higher Pension Package (HPP), within which IRAs and IRSAs are available, dedicated to employees of corporate clients serviced by TFI PZU.

As at the end of 2022, TFI PZU had 59 funds and sub-funds in its portfolio, including 9 ECS sub-funds.

At the beginning of 2022, 7 new inPZU SFIO sub-funds were added to the distributed offering, and a new method of client identity identification was implemented in the inPZU service – video-verification that takes into account all identity documents. TFI PZU also offers intensively developed managed account services. In November 2022, TFI PZU merged with TFI Energia thanks to which it acquired 3 Energia Emerytura SFIO pension sub-funds, one closed-end fund dedicated to an external entity and a portfolio of assets under management. The effect of the merger is an increase of the assets under management of TFI PZU by approximately PLN 5.2 billion and strengthening its position in the pension products market.

At the end of 2022, TFI PZU managed investment funds with net assets of PLN 29.7 billion, an increase of 22.7% as compared to the end of 2021 and an 11.1% share of the investment fund market. Thus, within the investment fund management market, TFI PZU achieved the status of one of the three largest investment fund companies in Poland (in the reports of the Chamber of Fund and Asset Management, it was ranked third after Ipopema TFI and PKO TFI).

Source: IZFiA

As part of its progressively expanding asset management service on behalf of clients (asset management service), TFI PZU managed nearly PLN 11.3 billion in assets as at the end of 2022, including nearly PLN 0.6 billion for an external client. The value of assets under management in investment funds and under the contract management service amounted to nearly PLN 41 billion, of which assets from an external client amounted to PLN 15.5 billion.

TFI PZU saw the largest asset growth in 2022 in its target date sub-funds: ECS inPZU 2035 (+PLN 222.6 mln); ECS inPZU 2040 (+PLN 205.2 mln); ECS inPZU 2030 (+PLN 189.8 mln); ECS inPZU 2045 (+PLN 148.9 mln) and ECS inPZU 2025 (+PLN 137.6 mln), while the funds with the largest decrease in net assets in 2022 were: PZU Sejf+ (down 272.6 mln), PZU Stabilnego Wzrostu Mazurek (down 209.5 mln) and inPZU Inwestycji Ostrożnych (down 130.4 mln).

A significant positive effect of TFI PZU’s activities in 2022, was the positive balance of sales of inPZU funds through distribution via the inpzu.pl platform – despite the exceptionally negative market environment and the decline in market size.

Changesin assets under management within the funds were driven predominantly by:

  • the merger with TFI Energia;
  • development of the inPZU service and offering and the support actions;
  • systematic contributions as part of Employee Capital Schemes;
  • systematic contributions as part of Employee Pension Schemes;
  • global financial market reactions to Russia’s invasion against Ukraine;
  • National Central Bank policy in the area of interest rates;
  • an unprecedented rise in bond profitability, depressing their valuation;
  • discounts in most global stock markets;
  • interest rate hikes by central banks decreasing in relative terms the profits generated by some funds.

TFI PZU is also one of the market leaders in Employee Capital Schemes (ECS) and Employee Pension Schemes (EPS). This result is due to the extensive support that TFI PZU offers to employers in implementing and operating ECSs, the satisfactory investment performance of the ECS sub-funds, and the close cooperation with the Corporate Customer Division of PZU Życie.

The continued stabilization of the ECS and EPS portfolios in 2022 has strengthened the PZU Group’s position in both areas in terms of asset value and number of participants. TFI PZU’s ECS fund assets amounted to PLN 2.44 billion at the end of 2022, compared to PLN 1.36 billion at the end of 2021, an increase of 79% y/y. In total, at the end of 2022, TFI PZU had 103,436 ECS management agreements in place, with 712,820 employees enrolled.

On the other hand, 187,772 employees participated in the 540 EPSs run by TFI PZU, which collectively accumulated savings worth PLN 5.76 billion at the end of 2022.

PTE PZU manages the following entities:

  • OFE PZU “Złota Jesień” open-end pension fund;
  • DFE PZU voluntary pension fund.

OFE PZU “Złota Jesień” is one of the largest participants in the pension funds market in Poland. At the end of 2022, OFE PZU was the third largest pension fund, both in terms of the number of members, as well as in terms of net asset value:

  • The fund had 2,228,933 members, or 15.0% of all openended pension fund participants;
  • Net assets amounted to more than PLN 21.2 billion, or 13.6% of the total assets of open-ended pension funds operating in Poland.

Source: KNF

As at the end of 2022, DFE PZU had 41.2 thousand IKZE accounts with assets worth PLN 514.1 million. It kept the leading position in the voluntary pension fund segment.

Distribution and customer service

TFI PZU acquires assets for management within the framework of the following four business models:

  • The first one of these, which is still the most important one, is based on obtaining funds through strengthening the company’s market position in the pension market within the framework of EPSs and ECSs, whose assets exceeded a total of PLN 8 billion;
  • The second model involves cooperation with external entities, such as banks, brokerage houses, insurers and independent financial advisors (IFAs) that distribute TFI PZU funds to retail and institutional clients. The external distribution model was launched in 2011 and is rapidly expanding in scope by acquiring new partners in traditional and remote channels. As at the end of 2022, TFI was working with 23 institutions in this channel;
  • The third model is based on the use of own and partner networks related to PZU – a network of PZU insurance branches, PZU Group member banks (Bank Pekao and Alior Bank) and TFI’s own sales network.
  • The fourth and youngest distribution model is the online platform launched in 2018 along with the launch of the first umbrella of passive funds in Poland, which at the end of 2022 was comprised of 16 asset classes.

An important project, which was completed in November 2022, was the final stage of the process of migrating service processes from the previous Transfer Agent’s operating system to the new system.

The online platform, inPZU.pl, launched in 2018, enables clients to independently invest in the first fully proprietary passive funds in Poland. The platform is available 24/7, both in the desktop version and on any mobile device, and since 2020 also an English language version has been available. On the inPZU website, users may compare funds, define their investment objectives and personalize them. inPZU also enables users to search for funds and ready-made model portfolios as well as pay for their orders online. The platform is available to both individual and institutional clients. This is an attractive tool both for advanced investors and persons who are just starting to invest their savings.

In the first half of 2022, a new method of client identity identification was implemented – video verification that takes into account all identity documents. In November 2022, the project to migrate the handling of registers and products from the old transaction service (SSI) to the inPZU platform was completed, allowing post-sale handling of all TFI products in a single online transaction service, under a single login and password.

At the end of 2022, there were more than 117,000 active users of inPZU.pl.

Payments to OFE PZU originate from pension insurance contributions transferred by the Social Insurance Institution (ZUS) in accordance with the decision made by the insured, under the second pillar of the pension system.

Client acquisition for individual pension security accounts by DFE PZU is carried out through five distribution channels:

  • PZU Życie;
  • Bank Pekao;
  • PZU CO;
  • own sales network of PTE PZU;
  • the Internet.

The online contracting tool is the Contract Wizard, available at http://ikze.pzu.pl. With this solution, clients may easily open their individual pension security accounts without the need to send any documents. Sales activities carried out in 2022 indicate that despite further post-pandemic threats, distribution channels in the form of PZU Życie and Bank Pekao branches, which provide direct contact with clients, have the greatest sales potential.

During 2022, educational activities were carried out; they were related to communication of contribution limits on individual pension security accounts, information on the possibility of taking advantage of the tax credit, and building awareness of pension security and retirement saving.

Factors, including threats and risks, which may affect the operations of invetment funds, Employee Capital Schemes and pension funds in 2023

The condition and performance of the market for investment funds and Employee Capital Schemes will depend mainly on the following:

  • the geopolitical and macroeconomic situation (including the pace of economic growth, the unemployment rate and the inflation rate in Poland and Europe) affecting the financial standing of enterprises and households;
  • actions taken by central bank (Federal Reserve System – FED, European Central Bank – ECB, Bank of Japan, People’s Bank of China) translating into global money supply and liquidity on the financial markets;
  • the impact of levels and exchange of interest rates announced by the National Bank of Poland on both the bond market and the whole capital market in Poland;
  • absorption by the economy of the high inflation environment which will affect the rate of economic growth in Poland;
  • propensity to allocate savings in investment and long-term solutions in the event of a higher inflation and greater debt servicing costs;
  • the level of participation of employee capital schemes participants in the first ECS auto-enrollment process, which will take place in the first half of 2023.

The main challenges facing the pension fund market are the following:

  • the economic climate on the capital market and, in particular on the Warsaw Stock Exchange, which is affected by the war in Ukraine and which affects the value of the funds’ assets, and the level of fees collected by pension fund companies for management;
  • active asset allocation due to increasing interest rates;
  • active participation in the work on enhancing the performance of the third pillar of the pension scheme, thus making it more attractive, and influencing the need in public awareness for accumulating additional savings for future retirement.
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