The challenges of 2020, the achievement of 2021, and the plans for 2022. The CheckPoints sat down with Pension Agency’s CEO, Giorgi Danelia to unpack crucial insights into new amendments, confidence, diversification challenges of the agency, and many more.
Elene Kvanchilashvili: Thank you for taking our questions. So what did the pandemic, yet another pandemic year look like?
Giorgi Danelia: I think you wouldn't be surprised that for us, as well as for the whole economy and for the country and the region, the pandemic was one of the major challenges within 2021. But besides that fact, I think we manage that quite effectively, especially taking into consideration the investment results that we have. We generated approximately an 11.5 % return on our investment. I think it's quite a good result. Especially if you look from the initiation of the investment office and from the starting point of investment activities, we have generated approximately 6% of real return, which means that we have 6% above the inflation for that period. So that's quite a result, I believe. So, in that regard, we still think and we hope that for the next year, the pandemic effect will be minimized. Let's say not only for the PA but for the country itself. And we'll continue that trend for upcoming years, for sure.
Giorgi Isakadze: Structural wise - I want to highlight two directions while we more or less touch upon the topic of inflation... we're talking about the future and possible amendments, let me say so because you were in a process with MPs and parliamentary committees, etc in regards to some specific amendments. My next question goes to confidence, which is my major issue in regards to PAs. So let's begin with the amendments.
Giorgi Danelia: As for the amendments, I think we discussed at the beginning of the year that we were trying to have some kind of technical amendments in the law, which stemmed from our practice already, how things should be done, et cetera, et cetera. And then our investment board expressed willingness to add some, let's say, amendments that might be connected to the investment mandate...
Elene Kvanchilashvili: And to expand it, right?
Giorgi Danelia: Yes. So, basically, we mean to expect and give more flexibility to invest in the office too, let's say, have a more diversified portfolio because as we see the area of potential possible investments is quite limited given the risk constraints and limits that we have in the law. So, I think that was the main reason for the investment board and I share their ideas and share their thoughts that this might be a good, effective amendment for investment activities as a whole. That's why I think if we can make it happen, that will only benefit the beneficiaries because it will somehow boost their rate of return.
Giorgi Isakadze: Do you agree with me that confidence is something that should be permanently taken care of, overviewed, monitored by the PA team as well? Actually, not "as well," but first of all, by the PA team.
Giorgi Danelia: Definitely. And as for the confidence, I think the best answer to that problem is our results and the fact that we already have beneficiaries who already are benefiting from their own savings. We already paid out their savings to them and the amount of total payouts is already more than two million Georgian lari. And besides that, as time passes, they see what we do, how we do, how we treat their savings, how we invest their savings. And I think that's the best answer to their concern - they can feel more safe and confident as they follow our results. Of course, we try to spread the information as much as possible. We want our beneficiaries to understand what kind of scheme it is and how they can benefit from it. And of course, the more aware they are about the scheme and about their savings, the safer they feel.
Elene Kvanchilashvili: Of course, and more they feel that this is their money that is being managed by professionals. Expansion of the mandate and also the confidence... I would like to link these two together. Do you think a special depository has changed the picture and is the need for expanding this mandate based on the assessment of what the Special Depository has already achieved in terms of investment?
Giorgi Danelia: My answer is definitely yes because the Special Depository was one of the requirements of the law and before that, we were unable to diversify our portfolio. Simple as that. After signing the concept with the special depositor, which took quite a lot of work in time because it was a very complex contract, our investment office is able to diversify the portfolio, which means that they can more effectively manage risk and more effectively target the return. So the special depository and there might be some confusion within the beneficiaries of why it's called a depository. Do we put all our money in one bank or?... So it's more like a safe. It's one line of defense, as we call them. They control how we make decisions, let's say. To put it simply, our investment office makes decisions. They check compliance with the law, they check compliance with the investment mandate, and if there is any concern they raise this concern within the National Bank of Georgia because the National Bank is the regulator of the Special Depository. So, it's a kind of independent additional safety for our investment decisions. This is a very important milestone for 2021 that we achieved this year.
Elene Kvanchilashvili: Is this diversification a challenge considering, again, the mandate that you have currently?
Giorgi Danelia: Well, if you look at the possible investment alternatives within the Georgian economy, you'll see that it's quite limited. Even though we have this diversification possibility, you still cannot invest all the money that we have now because we have quite strict requirements in the law. There is written that, for instance, we can invest in a company that has a sovereign rating or one notch below, which is very limited in the Georgian economy. So for instance, one of the amendments that might be discussed within the relative bodies is that this rating requirement may be a bit lower because, for instance, if we look at the companies that have a sovereign rating minus two notches, that increases the potential investments that we have. So, all these little details all together make the big picture. So, in that regard, I think if we go in that way and get amendments, this diversification would be more effective.
Elene Kvanchilashvili: So, what's on the agenda in 2022, and what will be your main message that you want to put out to the stakeholders of PA?
Giorgi Danelia: Well, I would divide the milestones into two parts. The first one is the investment activity and the second one is the operational activity. For investment activity, for sure, we will have a more diversified portfolio, definitely, we will have more interesting investment opportunities arising domestically and internationally as well because as you know, we have a limit of 20 percent of our portfolio that can go into global instruments. We'll really start the diversification process. In 2023, when we are able to invest not only in the low-risk portfolio, but in the medium and high-risk portfolio, that will be a very good preparatory time for us, and we'll have some time to prepare for that major milestone that we'll have to face in 2023. As for the operational side, we will definitely make our services available digitally electronically. PA is not covering the regions physically. We have just one office in Tbilisi, so everyone has to have the option to use our services through their personal electronic pages that are available, by the way, within the Pension Electronic System. That's a very important milestone. Even pension payments and all the paperwork that is connected to the pension payment should be done electronically. The number of beneficiaries is increasing and payouts are also increasing. So, we cannot have everyone coming to our office, right? We have to have some kind of availability through different channels. So that's one of the things that we're trying to achieve.
