Romanian pension funds are likely to be forced to invest abroad given the small size of the local capital market and sluggish progress with IPOs of state controlled companies, Greg Konieczny, manager of Romania’s property restitution fund Fondul Proprietatea (FP), warned on January 26.

Romanian institutional investors have increasing amounts of capital at their disposal, but the size of the local equity market is small compared to CEE leaders Vienna and Warsaw, and even regional peers such as Budapest or Prague. This could result in more Romanian capital being invested abroad, even though it is urgently needed to boost the domestic economy.

Romania only reformed its pensions system in 2008, around a decade later than in most CEE countries. Since then, investments into “second pillar” pensions (privately managed mandatory savings systems) have been growing rapidly. Pension funds now account for 48% of the €12.35bn assets under management by local institutional investors. According to Konieczny, Romanian pension funds are expected to invest around €300mn in equities in 2016, in line with their current exposure of around 20%.

“The only way to keep this money in Romania is to create supply in shares, which should be coming from IPOs. Otherwise this money is going to leave Romania, which is the last thing that the country should allow to happen,” Konieczny told a press conference to mark the fifth anniversary of FP’s listing on the Bucharest stock exchange.

A series of IPOs of major companies with state ownership took place in 2013 and 2014, when companies including Electrica and Romgaz came to the market. This followed pressure from FP, a minority shareholder in each of the companies.

However, the pipeline has since dried up with no IPOs in 2015, and only one company - hydropower generator Hidroelectria - expected to list in 2016. Decisions on possible listings of Constanta Port, Bucharest Airports and Posta Romana have still to be made, while the Ministry of Economy again postponed a decision on salt monopoly Salrom’s IPO at the company’s shareholder meeting on January 14.

The Romanian government has approved an IPO for power company CE Oltenia, but there is no immediate prospect of listing the company.

Energy minister Victor Grigorescu said in response to a question from bne IntelliNews that he “wouldn’t want to speculate on the timing”, adding that while there was a “clear commitment to continue the IPO process ... Oltenia probably needs to go through a more thorough reshuffling process before a successful IPO could be prepared.”

Konieczny confirmed that a new supervisory board and management need to be appointed at CE Oltenia, and restructuring launched before an IPO can take place. “These are the first steps before we can start thinking about the IPO and it is hopefully not going to be a very long process, but from our perspective this year is out of the question.”

Given the lack of opportunities to invest, Konieczny warned that Romania could end up in a situation like Lithuania’s where around 80% of pension funds’ assets are invested outside the country.

“Lithuania is financing the economies of Poland, Hungary and other countries. This is not something Romania should allow,” Konieczny said.

The US ambassador to Romania, Hans Klemm, also noted that “deep liquid capital markets” would promote growth. “The depth and maturity of Romania’s capital markets, as the experience of other emerging markets has shown, would be accelerated if more of the state-owned enterprise sector were managed by professionals and brought into the market,” he said.

According to data from Romania’s financial regulator, the ASF, the value of total assets under management in the private pension system was RON20.2bn (€4.5bn) in 2014 (the latest available data), a 36.65% year-on-year increase. This figure continued to grow to almost €6bn in 2015. While the majority of private pension fund assets - 93.24% - were invested domestically as of end December 2014, this represented a slight decline compared to December 2013 (94.14%).