Monday, January 12, 2009

Turkey's Pension Funds Lead the World


Tonight's comment will be short and sweet. According to Hurriyet Daily News, Turkey's pension funds grew by a whopping 32% in 2008:

In a global environment of financial crisis and risk aversion, pension funds all around the world have shown a tendency to contract, except in Turkey.

Unlike the rest of the world, the number of those who participate in pension funds in Turkey has been increasing. That is because people here prefer to invest in less risky instruments, according to daily Hürriyet.

The number of those who participate in pension funds has reached nearly 1.75 million, while the total value of the pension funds have reached 6.4 billion Turkish liras, which constitutes an increase of 32 percent compared to a year earlier. The trend of growth followed through out last year is expected to continue well into this year, reported the Istanbul-based newspaper.

All advanced countries, particularly in the Americas and Europe, have been experiencing serious contractions in their pension funds.

Global pension funds have narrowed 20 percent during last year and lost a total of $5 trillion due to the global credit crunch. A major part of these loses has been experienced in the United States with $3.3 trillion. United Kingdom followed with $300 billion, while Australia lost $200 billion from pension funds.

On the other hand, the situation in Turkey has been the opposite, since investors have been making conservative choices and leaning heavily toward investing in treasury bonds and state bonds.

"The global financial crisis has not had an impact on us. On the contrary we continued our growth," said Yusuf Yeşilırmak, Vakıf Emeklilik general director. "The share of pension funds invested in equity hovers around 60 to 65 percent in the United States. That figure stands below 10 percent in Turkey," he said.

Investment details

Nearly 86 percent of the pension funds have been invested in public borrowing instruments or in fixed yield investment vehicles such as reverse repo in Turkey. Meanwhile the share of pension funds invested in equity in the country stands at only 8 percent.

The prudent investment style has helped the funds maintain their value and not bear big losses, agree directors of pension companies, adding that they expect the investors to follow a similar path this year.


"Although we have been through some periodical stagnations, still the point we have reached in pension funds is in the direction of the target we determined five years ago," said Meral Egemen, AvivaSa general director. "The global credit crunch has hit both the global banking and insurance sectors. However, since the mechanisms in Turkey are quite different than in the rest of the world, the impact of the crisis has been different here," said Egemen.

The sector grew quite rapidly during the first three years, said Ajlan Sözütek, Finans Emeklilik general director. "However during the last two years the growth rate has been slowing down. That is because some people began to think they would not be able to invest in the system due to the global crisis," he said. "It seems 2009 will be a tough year."
There you have it, the best pension funds in the world are in Turkey because they had the common sense to invest conservatively, allocating a substantial portion of their pension funds into high quality government bonds, keeping the share of equities below 10%.

No hedge funds, no private equity, no real estate, no commodities, no auction-rate securities, no ABCP, no CDOs or CDS, just plain old boring government bonds. Instead of being down 32%, they are up 32%. That isn't just impressive, it's phenomenal.

Mustafa Kemal Ataturk would have been proud of his country's pension prudence and this proud Greek Canadian is giving Turkey's pension funds the recognition and credit they rightly deserve.

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