(C) Asset management for the so called Silver Fund (Fund for sustainable retirement system)

Bulgaria is one of the fastest aging nations in the world. Ensuring sustainability of the pension system is impossible through deposits with the central bank, yielding less than one percent annually. It is natural to expect higher returns from instruments with higher risks than deposits, such as cash instruments, bonds and shares. The investment horizon of such funds is long; therefore high weight of shares in the portfolio is commendable.

Certain criticism regarding the fund's investment framework holds place though. The guidelines are rather restrictive regarding the maximum percentage allowed for bonds and cash instruments. There is lack of opportunity for investment in commodities and prohibition on investments in precious metals or certificates on them. The investment portfolio should be consistent with economic cycles. The current investment framework on the portfolio of The Silver Fund reflects understanding for a permanent rise in the economy, which is unrealistic. Every investment vehicle has their role in the different phases of the economic cycle. In order to get the rational yield of such a portfolio it is necessary to seriously review the limitations in Art. 13 of the regulating Act.

In addition to the legislator's desire to avoid investments in the local economy, in order to insure lack of "influence" by local agents, a meaningful continuation of this policy is to consider also the investments related to the Bulgarian economy. In this line of thoughts it is necessary to prohibit / restrict investments in economies that are highly correlated with the Bulgarian one, as well as, assets which are highly correlated with the local market (e.g. banks with subsidiaries in the country). Otherwise, we can observe a lack of diversification effect of international investment, as seen in late 2007 and early 2008.