In 2016, nearly one-third of private pension funds (PPFs) left the market. Their number dropped from 102 to 74. In general, the funds lost the license because of violations (18 licenses revoked). As a rule, it happened because of the lack of capital; in addition, the funds did not comply with the requirements on the internal control, timing of payments, and invested in retirement savings circumventing the requirements. The loudest history was the revocation of licenses of six funds, owned by businessman Yevgeny Novitskiy, due to poor structure of the investment portfolios. However, the market was abandoned mostly by small players, while large pension funds group attempted to merge.

Pensions Merged

According to the Central Bank's data, in 2015 the 10 largest PPFs had 76.8% of total pension savings, and by the end of the 3rd quarter of 2016 — 83.2%. The main consolidators in 2016 PPF Buduscheye (254.5 billion rubles ofetirement savings and 4.3 billion rubles of reserves), which was merged with the funds Nashe Buduscheye and Uralsib, and PPF Safmar (183.4 billion rubles of savings and 8.3 billion rubles of reserves), which was merged with the European pension fund, Regionfond and Education and Science Fund. 

2016 was the first year of full-fledged operation of the pensions assurance systems marked by a large number of transactions, which means that the number of funds will continue to decline. O1 Group (owner of the PF Buduscheye) has agreed with the FAS the acquisition of the PPF Social Deelopment (7.6 billion rubles of savings and 3.1 billion rubles of reserves). IG Russian Funds bought PPF Ugol (0.8 billion rubles of reserves); besides, by 2020 the group will merge its PPFs: apart from PPF Ugol, there are Pension-invest (0.2 billion rubles of reserves) and Social World (0.06 billion rubles of reserves) to create the fund with assets worth 5.5 billion rubles. PF Safmar intends to merge PPF Doveriye (69,5 billion of rubles of savings and 0,3 billion rubles of reserves) to its leading fund by 2017. 


Desire for Purity

"Consolidation of private pension funds occures in three stages," indicates CEO of the company Pension Partner, Sergey Okolesnov. According to him, the first phase was in 2015: "There was a massive revocation of licenses, first of all caused by the implementation of the assurance system (at the same time there was a scandal with Anatoly Motylev's funds)."

"In fact, it was the first such test in the history of the pension insurance market," adds the chairman of the board of SRO-ANPF, Leonid Gilchenko. According to him, the Central Bank thus cleansed market from possible potential problems. The second stage is taking place today, Okolesnov said: "Central Bank" cleared out the funds, which couldn't join the assurance system; there's also the merge of funds of major financial groups. Inevitable is the third stage, when the regulatory authority will eliminate the remaining small PPFs, which basically kept the status of non-profit organizations (due to capital shortage or unwillingness to go public), and this stage has already begun, he says.

"Now, the regulatory authority's task is to fix the result of inspections. Therefore, the Central Bank will continue the policy of supervision tightening, particularly in terms of investment policy," said the President of SRO NAPF  Konstantin Ugryumov.

Central Bank Made Business Expensive

There are two objective reasons for consolidation: costs reduction, and the increase of transparency for the regulator, said Yuri Nogin from ACRA. "Central Bank tightens its requirements every year, and the funds, which can not meet the set standards, leave the market," - says General Director of PPF Sberbank, Galina Morozova.

According to Pavel Mitrofanov from RAEX, the pension business is becoming more expensive. "The policy of the regulator forces the PPFs not the finance large-scale projects of its shareholding, which also also makes it much less profitable to own a fund for those who are not planning to do this business professionally," he says.

"The regulatory burden on funds with regard to reporting, risk management and other commitments will increase multifold in 2017; it will make it impossible for small funds to operate on the verge of profitability. The best option they have is to merge, and the worst to give up a license," says Ugryumov. According to the executive director of PPF Safmar, Yevgeny Yakushev, a significant reduction in the number of PPFs, which happened in 2016, would not continue; however, due to the M&A transactions and consolidation one can expected a reduction in the number of small funds. Mssrs. Mitrofanov and Nogin disagree with that: they predict that consolidation in the next year or two will largely take place in the NPO sector. "The pension reserves have accumulated a lot of problems: they are a lot of FTRA units FTRA investing in illiquid instruments related to beneficiaries of funds, as well as the ISU. All these tools are often of a much lower quality," explains Nogin the possible future actions of the Central Bank on the"sweeping" of funds specializing in NPO. By 2019, all PPFs working with the reserves should be corporatized, Mitrofanov recalls: "In this connection there may be additional regulations which will force the smaller funds to leave the market and be sold to the major players" The PPF Welfare specializing in the reserves agrees with that: "One can expect a withdrawal from the market of small funds through the sale or withdrawal of licenses, as well as further processes for market consolidation around pension groups."

Who Will Remain

The Central Bank said that it does not rule out "sectoral consolidation and withdrawal of certain market participants in connection with changes in legislation."

"The high cost of pension business, the tightening regulatory policy by the Central Bank, the competition between funds for bringing customers," as Gilchenko lists the reasons. "The struggle for survival principle among the market participants is likely to continue," says Ugryumov. PPFs assets worth less than 3.5 billion rubles may become the objects of consolidations, says Nogin. "3-5 billion rubles are the minimal assets for the fund to break even," says Okolesnov. Non-core market players have already begun to dispose of the funds, he notices. "PF Safmar and Buduscheye, two most active buyers in 2016, may remain the consolidators in the CPI sector," says Mitrofanov. However, in his opinion, other financial groups are also willing to join the consolidation leaders. "The activity in mergers and acquisitions may be shown by PPF Blagosostoyaniye and Renova GC. Also, MKB shows its interest to the pension corporate market," he observes. In the second tier, IG "Russian Funds" will likely to remain active. According to Gilchenko, by the end of 2017 there will be 60-65 funds on the market. "In the end, the market will have no more than 20-25 PPFs, including sectoral and regional funds," said Yakushev.