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LHV launches passive pension funds

8. November 2016

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 Pensionifond Indeks and the third pillar fund LHV Pensionifond Indeks Pluss – as of this week.

The main feature of passive funds is that there is no active management of assets. The funds are constantly invested in the market and their yield closely follows the movements on global markets. No redemption fee is applied to LHV Pensionifond Indeks or LHV Pensionifond Indeks Pluss, and the management fee is 0.39% per annum.

Joel Kukemelk, the Member of the Management Board Member of AS LHV Varahaldus and Fund Manager of the passive funds, 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 investments structure of the funds,” explained Kukemelk. “That’s why our funds don’t invest in investment funds established with derivative instruments.”

The second pillar fund LHV Pensionifond Indeks invests up to 75% of its assets in equity funds and the remainder in real estate funds. All of the assets of the third pillar fund Indeks Pluss are invested in equity funds. LHV’s passive pension funds do not invest in bonds. Investments into equity funds 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 in investing. In addition to having the ability 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 is not being actively changed, which is why we believe that the new funds will attract clients who are aware of the securities markets and are prepared to tolerate significant market fluctuations.”

Kukemelk added that pension funds that are fully invested in securities markets increase the choices 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 fund rules and the prospectuses of the funds and further information are available online at lhv.ee/pension. It is possible to join the second pillar fund LHV Pensionifond Indeks online or at branches of banks, while units of the third pillar fund LHV Pensionifond Indeks Pluss can be subscribed for in the Internet Bank.

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