If money from the fund Silver Fund is used to buy Bulgarian government securities, the amount spent will be no longer part of the reserve pension fund and this will trim the fiscal reserve of the state. This is the thesis the former deputy prime minister Nikolay Vassilev also expressed by analyst Georgi Angelov of the Open Society. Their views were heard during a round table discussion on the amendments to the Silver Fund Act, organized by the Bulgarian Association of Licensed Investment Intermediaries (BALII) and the Association of Industrial Capital in Bulgaria (BICA) on March 20.
Organizers of the forum, however, supported the draft project of the Finance Ministry which according to them may be used to reduce the proposed threshold for investments in domestic securities of 70 percent.
Minister Dyankov did not attend the forum, but his representatives pointed out the official reason for the government to decide on such amendments to the Silver Fund ACT is that this way they can achieve a reasonably high yield at low risk. This, according to Deputy Minister Pencheva could be done through diversification of the territorial scope of investments. Bulgaria is the only one out of 11 countries that have similar reserve pension funds, which prohibits the investment into their own market. A better mix of investment instruments is a prerequisite to achieve better returns, said Mrs. Pencheva. It also reminded that on 22 February this year the fund’s Board decided unanimously to support changes in the law.
The BALII said it strongly supported the draft amendments. Moreover, its chairman Lubomir Boyadjiev commented that the Silver Fund has so far generated BGN160 million in opportunity costs. He supported his thesis for a pro-active management of the fund with the fact that in world there was no fund of the kind that would hold all its money on deposit with the Central Bank. The fear of conflict of interest will be resolved very clearly said Mr. Boyadjiev, adding that the funds will be managed by independent fund managers and investment advisers, over which there will be supervision. It is understood that these fund managers and consultants will not work for free, which partly explains the position of the Investment Association.
The picture of the effect of investing part of the Silver Fund’s money on the Bulgarian Stock Exchange was apocalyptic, as outlined by Nikolay Vassilev. If the Funds pours money on the bourse this will raise prices – he said. – If the blue-chip SOFIX index is now around 300 points, it can jump to 400. Many people will then start selling. The effect will not be a favourable development of the stock exchange but a complete failure, according to Mr. Vassilev, because tens of millions to hundreds of millions levs will leak abroad.
Milena Boykova, board member of the Silver Fund, appointed by the Finnace Ministry, tried to bring calm to the debate. She pointed out that a prohibition to invest Silver Fund money on the Bulgarian market is a discrimination because it violated the directive on free movement of capital within the EU. Mrs. Boykova evaded the dispute about possible investment strategies, saying that the changes now represent a legal framework amendment and not an investment strategy plan.
