By Mariya Gordeyeva and Dmitry Solovyov
ALMATY, Sept 5 Oil-rich Kazakhstan, merging its private pension funds into a state-run entity, plans to invest 20 percent of the assets abroad in 3 to 5 years, its central bank governor, Grigory Marchenko, said in an interview.
It compares with today's 10 percent, he told Reuters. The money would be invested in listed foreign shares, but not in private equity or with hedge funds.
Marchenko, largely responsible for shaping Kazakhstan's present-day banking and pension systems, also warned of long-term political risks and said it was not certain that the pension reform will be over by the end of this year as planned.
President Nursultan Nazarbayev, a 73-year former steelworker who has ruled the state of 17 million for more than two decades, ordered in January the assets of 10 Kazakh private pension funds to be coralled into a state fund called GNPF. [ID:nL6N0AS986]
He ordered the government to complete pension reform by the end of 2013 and charged the central bank with managing the assets of the single fund, effectively turning it into the country's largest asset manager.
Marchenko, 53, who was a candidate for the top job at the International Monetary Fund, said that the combined assets of the country's pension funds are around $23 billion.
After the merger of pension funds the central bank would manage total assets worth some $120 billion. He said this equals 60 percent of Kazakhstan's gross domestic product, which measured $200 billion last year.
He said the assets included some $26 billion of the central bank's gold and currency reserves and around $66 billion of the National Fund collecting windfall revenues from oil exports.
Nazarbayev has said pension assets of a single, state-run fund would allow the government to mobilise billions of dollars for large projects to help sustain fast economic growth without raiding the strategic National Fund.
Kazakhstan targets 6.0-7.1 percent GDP growth for 2014-18 after last year's 5.0 percent.
The National Fund is now 100 percent invested abroad, but with time some of it can be invested in paying projects in Kazakhstan, Marchenko said. "This could lead us to raise the share of foreign securities held by our pension fund," he added.
"In the mid-term of 3 to 5 years, the share of foreign securities in the pension fund's portfolio must be raised to 20 percent, for a start. Now it's about 10 percent," he said.
"The talk is about public securities traded on international exchanges - shares and bonds. Pension assets won't be invested in alternative instruments like private equity or hedge funds."
FIRST HURDLES AND DELAYS
The government had originally planned to merge assets of private pension funds by July 1, but missed the deadline.
Marchenko said the delay was partly due to difficult talks between the government, represented by sovereign wealth fund Samruk-Kazyna, and some local banks, which have pension funds of their own and are keen to get a maximum price for them.
Marchenko declined to elaborate on whether the end of 2013 deadline, set by the president for completing pension reform, could be met. "If these negotiations had ended yesterday, then we would have done it on time," he said.
"We must do everything correctly and should not be fixated on any firm dates, because the talk is about 8.5 million of depositors and $23 billion of their pension savings."
Marchenko was one of the designers of the 1998 Chile-style pension reform, which created a system of private pension funds, allowed citizens to make savings in funds of their choice and won praise from economists worldwide.
He now says that managing a single fund under the umbrella of state-run GNPF will be a big advantage in the short- and mid-term, if only because it will greatly cut administrative costs.
He said, however, that the government "may be tempted to raid this pension money" in the long term, adding that any large-scale state projects like infrastructure ones must be subject to strict expertise and be profitable.
(Editing by Jeremy Gaunt)
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