Compensation fund dips into the red

  • 1998-11-26
  • Kairi Kurm
TALLINN - For the first time since it was established, the compensation fund Huvitusfond has found itself in the red. It posted an unaudited 300 million kroon ($22 million) loss for this year and is now planning to change its investment policy.

The predicted 300 million kroon loss is comprised of a nine-month 241 million kroon loss and a 66 million kroon loss on additional provisions.

Aare Tammemae, Huvitusfond board chairman, said, however, that the fund's forecast is very conservative and the actual loss may be smaller.

"We hope to get back the money provisioned but not this year," said Tammemae.

The fund was founded by the state to redeem compensation vouchers. Estonian taxpayers receive compensation vouchers according to years of employment. The vouchers are meant to compensate for losses incurred after the Soviet Union collapsed and citizens may use them to privatize their apartments or to sell back to the state.

The fund is also allowed to carry out business deals, which has led to the current projected losses. Forty-two percent of the fund's nine-month loss comes from losses on decreasing prices of shares on the stock exchange, and 29 percent come from unprofitable investments.

The nine-month loss also includes the 80 million kroons the fund invested in a dubious deal with Uhispank, which the latter now denies. If the court proves this deal is still valid, the fund's losses will be reduced by 80 million kroons.

"The fund would end this year with a loss, but changes in the management and the new and more conservative investment strategy should secure a better development in the future," said Tammemae. The previous board was dismissed in September due to bad management and the company's bad economic results.

During its six-year existence, this is the first time that the fund produced a loss and the first time assets decreased. The fund's loss in nine months this year is nearly equal to the fund's earlier years' accumulated profit. The fund's assets are about 1.5 billion kroons.

According to the more severe investment policy, the fund's investments in stocks will be reduced and new investments will be directed mainly into shares of infrastructure companies, which have received a high international rating.

The fund is also planning to increase its investments in liquid assets, which make up about 40 percent of the fund's investments. "The fund has no short run obligations, all the obligations we have are long run. This means that the compensation fund is quite liquid," said Tammemae.

The fund, which made its last bond issue in late summer, intends to organize its next issue in the first quarter of 1999 to test the market's interest in the bonds.

In its 12-bond issues so far, the fund has issued 447 million kroons' worth of bonds, the average yield on the basis of market prices and guaranteed interest of which has been about 30 percent.

Compared to the 13 percent interest earned from bank deposits, the compensation fund was the best possible guaranteed investment, said Huvitusfond spokesman Andres Laisk. The fund has paid more than 90 million kroons in interest to people who have bought fixed income bonds in the fund.

In accordance with the law, Huvitusfond must issue bonds to the total value of its capital stock, which is presently about 1.2 billion kroons. The fund must conclude its issue of bonds by mid-2000.

"Our aim is to meet the obligation fixed by law, but bonds would be issued in accordance with the market's ability to receive them," said Jurgen Ligi, council chairman at Huvitusfond.