LHV launches passive pension funds
In addition to its actively managed pension funds, AS LHV Group’s subsidiary AS LHV Varahaldus will start offering two passively managed pension funds – the second pillar fund LHV Pension Fund Index and the third pillar fund LHV Pension Fund Index Plus – as of this week.
The main feature of passive funds is that they involve no active asset management. The funds are constantly invested in the market and their yield closely follows the movements on global markets. No redemption fee is applied to the LHV Pension Fund Index or the LHV Pension Fund Index Plus, and the management charge is 0.39% per annum.
Joel Kukemelk, Management Board Member and Passive Fund Manager at AS LHV Varahaldus, says that the investment portfolios of both pension funds are diversely distributed in liquid investment funds that follow global indexes. "Avoiding undesirable counterparty risk was important to us when we prepared the investment structure of the funds," explained Kukemelk. "That’s why our funds don’t invest in funds established with derivative instruments."
The second pillar fund LHV Pension Fund Index invests up to 75% of its assets in equity funds and the remainder in property funds. All of the assets in the third pillar fund Index Plus are invested in equity funds. The passive pension funds of LHV do not invest in bonds. Investments in funds that invest in equities are divided between three market types – developed markets, emerging markets and frontier markets – according to their approximate share of global GDP.
"Active management of pension assets creates more value for the client according to LHV’s investment philosophy," Kukemelk said. "However, considering the increasing popularity of funds that follow the market, we see that some pension fund clients may be interested in passive funds. Passive funds are primarily suitable for clients who are capable of assessing investment risks themselves and have some experience of investing. In addition to being able to assess the general price level of securities and markets, the client must also be ready to make changes, i.e. to react. Irrespective of the situation on the securities market, the investment structure of passive funds will not actively change, which is why we believe that the new funds will attract clients who are aware of the market and are prepared to tolerate significant market fluctuations."
Kukemelk added that pension funds that constantly invest in markets increase the choice available to pension clients and offer them the option of dividing their pension assets between actively and passively managed funds. "LHV Varahaldus has been successfully investing the pension assets of its clients since 2002 and currently manages 30% of the second pillar pension savings in Estonia," he explained. "We believe that the addition of passive funds will have a positive impact on further growth in the number of LHV’s pension clients."
The rules of the funds, prospectus and further information are available online at lhv.ee/pension. It is possible to join the second pillar fund LHV Pension Fund Index online or at a branch, while units of the third pillar fund LHV Pension Fund Index Plus can be subscribed for in the Internet Bank.
LHV Group is the largest domestic financial group and capital provider in Estonia. The main subsidiaries of LHV Group are LHV Bank and LHV Varahaldus. LHV employs over 250 people and its banking services are used by over 100,000 clients. The pension funds managed by LHV have over 170,000 clients. The volumes of the pension funds managed by LHV Varahaldus as at the end of October amounted to 933.6 million euros.
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