Investments (PZU TFI)

Situation on the mutual fund market

As at the end of 2020, assets under management of domestic mutual funds were nearly PLN 280.5 billion, compared to 268.0 billion at the end of 2019, representing an increase by 4.7%.

Mutual fund companies – share in assets as at 31 December 2020 (in %)

Source: IZFiA

In 2020, according to data by Analizy Online, the balance of payments to and withdrawals from retail funds offered by TFIs in the domestic market stood at PLN 0.1 billion. This low sales result was caused mainly by the massive fund outflows in March and April (PLN 23.1 billion in total) in response to the panic behavior of capital markets in connection with the start of the COVID-19 pandemic in Poland. From May to December positive fund flows gradually increased, thanks to which the year ended with net inflows.

As a result of low interest rates on bank deposits from May to the end of 2020, debt funds were the most popular, but despite that, as a result of March and April outflows they recorded negative flows (PLN -2.7 billion). In 2020, the importance of Employee Capital Scheme (ECS) funds increased – they are, by nature, resistant to the market situation thanks to systematic payments made by employees, employers and the State Treasury. These funds attracted the most money in 2020 (over PLN 2 billion). Net inflows were also recorded by mixed funds (PLN 1.7 billion) and commodity funds (PLN 0.6 billion).

Employee Capital Schemes 

According to the Polish Financial Supervision Authority, the net asset value of the defined date funds under the ECS system at the end of 2020 was over PLN 2.8 billion. Net asset value of the defined date funds in the ECS system operated only by mutual fund management companies (TFI), without universal pension fund management companies (PTE) and insurance undertakings (ZU), at yearend 2020 stood at PLN 2.3 billion.

Mutual fund companies – share in assets (Defined Date Funds) as at 31 December 2020 (in %)

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

ECS implementation stages

Employee Capital Schemes are voluntary long-term savings programs for employee. Money on the employee’s ECS account comes from three sources: 

• the employee’s own payments (the so-called basic contribution, which is mandatory and voluntary additional contribution); 
• contributions financed by the employer (basic and additional contributions); 
• subsidies financed by the State Treasury (the so-called welcome contribution of PLN 250 and annual contributions of PLN 240).

The basic contribution, i.e. the employee’s mandatory payment, equals 2% of his/her monthly salary forming the basis for calculation of contributions for retirement and disability insurance. It may be lower (however not lower than 0.5%) if the employee’s salary earned in the month from different sources does not exceed 1.2 times the minimum wage. An employee may also declare a voluntary contribution in the amount of up to 2% of his/her salary.

The basic (mandatory) contribution from the employer, equals 1.5% of the employee’s monthly salary forming the basis for calculation of contributions for retirement and disability insurance. The amount of the employer’s additional (voluntary) contribution is up to 2.5% of the employee’s salary.

The money collected on the ECS account, coming both from own contributions and from contributions made by the employer and State Treasury subsidies, are fully owned by the employee and are inherited. The idea behind ECS is to accumulate savings for the future, when the employee turns 60. He/she may withdraw the money at any time before but will lose the State Treasury subsidies and will have to pay the capital gains tax.

Employee savings accumulated in the ECS are invested in defined date funds, that is funds with a specific investment target date, which will be close to the participant’s expected retirement date. Depending on the participant’s age, the degree of risk is modified: initially, funds are invested in more risky assets (such as equities), and over time they are switched to safer assets (such as bonds).

The ECS are introduced in stages. In the first stage, started on 1 July 2019, the reform covered employers with more than 250 people, followed by other groups in the next periods.

In connection with the outbreak of the COVID-19 pandemic, the final deadline for signing ECS management contracts by companies employing from 50 to 249 people (II stage of the reform) was postponed by half a year relative to the earlier deadline to 27 October 2020.

ECS may be managed and operated only by companies entered in the records kept by the Polish Development Fund. As at the end of December 2020, there were 20 such institutions: 16 TFIs, 3 PTEs and 1 ZU (Towarzystwo Ubezpieczeń na Życie).

TFI PZU’s activity

Towarzystwo Funduszy Inwestycyjnych PZU (TFI PZU) operates on the mutual 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); 
• Employee Savings Plans (ESP); 
• Employee Pension Schemes (EPS); 
• Employee Capital Schemes (ECS); 
• Company Investment Plans (CIP); 
• Group Pension Plans (GPP), within which Individual Retirement Security Accounts (IRSA) are available.

As at the end of 2020, TFI PZU had 50 funds and sub-funds in its portfolio, including 9 ECS sub-funds.

In 2020 the offer of specialized open-end mutual funds inPZU SFIO was strongly developed. These funds are available on the online platform inPZU.pl. Clients were offered new passive strategies based on cooperation with such partners as the Warsaw Stock Exchange and Goldman Sachs Asset Management, as well as actively managed ‘lifecycle” funds with investment policy changing over time, adapted to savings for pension. TFI PZU also offers intensively developed managed account services.

As at the end of 2020, TFI PZU managed a portfolio of net assets worth PLN 23.4 billion, representing a 10.5% increase from the end of 2019 and an 8.36% share in the mutual fund market. Accordingly, TFI PZU reached the status of one of the three largest mutual fund companies in Poland (it was ranked third according to reports published by the Chamber of Fund and Asset Management (IZFiA).

TFI PZU’s net assets (in PLN billion) 

Source: IZFIA

The largest increase in TFI PZU assets was posted by the following funds: PZU Papierów Dłużnych POLONEZ (up PLN 632 million), inPZU Inwestycji Ostrożnych (up PLN 254 million), PZU Stabilnego Wzrostu MAZUREK (up PLN 178 million), PZU SEJF+ (up PLN 168 million), PZU Akcji KRAKOWIAK (up PLN 139 million), PPK inPZU 2035 (up PLN 72 million), PPK inPZU 2040 (up PLN 68 million), PZU FIZ AKORD (up PLN 65 million), PPK inPZU 2030 (up PLN 61 million) and PPK inPZU 2045 (up PLN 60 million).

The following funds recorded the largest decreases in net assets at yearend 2020: PZU Obligacji Krótkoterminowych, inPZU Obligacje Polskie, inPZU Akcje Rynków Rozwiniętych, inPZU Akcje Polskie and PZU FIZ FORTE.

Changes in the asset value of individual funds were driven predominantly by: 

• development of the inPZU service and offering and the support actions; 
• active sales of funds as part of Employee Capital Schemes; 
• active sales of funds as part of Employee Pension Plans; 
• acquisition of assets from the efforts in unit distribution by external distributors; 
• interest rate cuts by central banks, relativizing the profit of certain funds; 
• the COVID-19 pandemic resulting in increased volatility of fund valuations.

TFI PZU is the leader in the pension product segment. At yearend 2020, it accumulated net assets in the amount of PLN 5.1 billion in Employee Pension Schemes.

TFI PZU is also one of the leaders of the Employee Capital Schemes market. The amount of assets accumulated in ECS funds managed by TFI PZU stood at PLN 392.2 million, which accounted for nearly 17% of the market (according to Chamber of Fund and Asset Management’s report) as at end of 2020. By 22 January 2021, ECS management agreements were signed with TFI PZU by over 35 thousand employers. This result is attributable to, among others, the broad support that TFI PZU offers to employers in deployment and service of ECS. They may use a free online service for remote conclusion of ECS management and operation agreements and daily service of ECSs. After the outbreak of the pandemic TFI PZU also introduced the possibility of entering into ECS agreements by phone.

Factors, including threats and risks, which may affect the operations of mutual funds and Employee Capital Schemes in 2021 

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

• macroeconomic situation (including the rate of GDP growth, the unemployment rate and the inflation rate in Poland and throughout Europe) affecting the financial standing of enterprises and households; 
• the condition of Polish economy and global economies as a result of the restrictions associated with the COVID-19 pandemic; 
• effectiveness of the COVID-19 vaccinations and the pace of the vaccination campaigns in individual countries;
• FED, European Central Bank – ECB, Bank of Japan, People’s Bank of China) translating into global money supply and liquidity on the financial markets; 
• continuation of the record low interest rates which affect the attractiveness of bank deposits while increasing the attractiveness of alternative forms of investments; 
• uncertainties related to privacy and technology regulations, new taxes and the enactment of antitrust regulations; 
• interest in savings in ECS among employees in the IV stage of the reform, affecting the amount of money accumulated in ECS funds.