THE 51st NATIONAL ASSEMBLY OF THE REPUBLIC OF BULGARIA
CC:
Committee on Labour and Social Policy
Submitted by:
Bulgarian Entrepreneurial Association (BESCO), UIC 177239971, represented by its Executive Director, Alexander Noutsov
Subject: Draft Act Amending and Supplementing the Social Security Code, No. 51-602-01-6 of 30 January 2026
The Bulgarian Entrepreneurial Association (BESCO) brings together more than 1,000 companies from dozens of industries. The organization's primary mission is to improve Bulgaria's business environment through effective public policies, the promotion of innovation, and the introduction of modern mechanisms for economic development.
Through this opinion, we express our support for the Draft Act Amending and Supplementing the Social Security Code (the "Draft Act"), No. 51-602-01-6 of 30 January 2026.
The introduction of a multi-fund pension system represents a significant reform of Bulgaria's pension system. We believe this reform will enable pension insurance companies to manage the assets of insured persons more efficiently while creating opportunities to achieve higher long-term investment returns.
In particular, we would like to comment on the proposed amendments concerning the ability of pension funds to invest in Alternative Investment Funds ("AIFs").
The proposed amendments in this area accurately reflect the systematic efforts undertaken by the Financial Supervision Commission, the Ministry of Finance, the professional associations of pension insurance companies, and the private equity and venture capital industry to improve Bulgaria's regulatory framework.
They represent an important step toward removing the regulatory obstacles that have prevented pension funds from investing in Alternative Investment Funds. Although such investments have been legally permissible for more than seven years, they have remained, in practice, an almost entirely unused investment instrument.
At the same time, we would like to propose several improvements to the provisions governing investments in AIFs. These amendments would make such investments a genuinely viable option for the various categories of pension funds while preserving the Draft Act's underlying philosophy regarding diversification and risk allocation among the different types of pension sub-funds.
The proposed amendments to Article 176 of the Social Security Code introduce a distinction between two categories of Alternative Investment Funds:
(a) AIFs managed by a manager authorized under the requirements of Directive 2011/61/EU (hereinafter referred to as "Authorised AIFs"); and
(b) AIFs managed by a manager that is subject only to registration under Directive 2011/61/EU (hereinafter referred to as "Registered AIFs"),
both of which would become eligible investment vehicles for the assets of mandatory supplementary pension funds and voluntary supplementary pension funds.
The Draft Act further provides that investments in Registered AIFs would be permitted only if the respective fund provides its investors—including pension insurance companies—with information specified in an ordinance issued by the Financial Supervision Commission.
The introduction of the possibility to invest in Registered AIFs is one of the principal recommendations made by both the private equity industry and pension insurance companies.
Registered AIFs constitute the backbone of the private equity and venture capital ecosystem operating in Bulgaria and throughout Southeast Europe.
They are also the primary investment vehicles supported by:
whose strategic focus is financing Bulgarian companies and domestic investment projects.
Accordingly, we fully support the approach adopted in the Draft Act, namely that the principal regulatory distinction between Registered AIFs and Authorised AIFs concerns only the scope and type of information they are required to disclose to investors.
From an investment perspective, however, there is no difference between the two categories regarding either:
Both Registered AIFs and Authorised AIFs enjoy the same freedom under the applicable legal framework to determine their own investment strategies and asset allocation. The legislation does not impose any specific investment restrictions on Authorised AIFs that would justify treating them as inherently lower-risk or more conservative investment vehicles.
We therefore believe that neither the Draft Act itself nor the existing Bulgarian regulatory framework governing Alternative Investment Funds under the Act on the Activities of Collective Investment Schemes and Other Collective Investment Undertakings supports assigning different risk weights—or, consequently, different investment limits—to Authorised and Registered AIFs.
This conclusion is further supported by the approach adopted by Bulgaria's principal institutional investor in Alternative Investment Funds—Fund Manager of Financial Instruments in Bulgaria EAD (FMFIB)—which, like pension funds, manages public resources. FMFIB's financial instruments treat Authorised AIFs and Registered AIFs equally.
The same approach is followed by Europe's largest institutional investors in Alternative Investment Funds that also manage public funds, including:
In light of the above, we propose the following amendments to the Draft Act:
Article 176(2) of the Draft Act should be repealed.
Article 177b(18) should be amended as follows:
"(18) No more than 7% of the assets of a Universal Pension Fund's Dynamic Sub-Fund may be invested in the financial instruments referred to in Article 176(1), items 15 and 16. The investment policy of the Universal Pension Fund may establish separate limits for investments in the financial instruments referred to in Article 176(1), item 15, and those referred to in Article 176(1), item 16."
Article 177b(19) should be repealed.
Article 177c(18) should be amended as follows:
"(18) No more than 2% of the assets of a Professional Pension Fund and of a Universal Pension Fund's Balanced Sub-Fund may be invested in the financial instruments referred to in Article 176(1), items 15 and 16. The investment policy of supplementary mandatory pension funds may establish separate limits for investments in the financial instruments referred to in Article 176(1), item 15, and those referred to in Article 176(1), item 16."
Article 251(12) should be amended as follows:
"(12) No more than 7% of the assets of a Voluntary Pension Fund, respectively a Voluntary Occupational Pension Fund, may be invested in the financial instruments referred to in Article 176(1), items 15 and 16. The investment policy of the respective fund may establish separate limits for investments in the financial instruments referred to in Article 176(1), item 15, and those referred to in Article 176(1), item 16."
The proposed amendments would align the regulatory treatment of investments in Authorised AIFs and Registered AIFs, while preserving the investment limits already envisaged by the Draft Act.
At the same time, they follow the Draft Act's overall approach by allowing each pension fund to establish additional investment restrictions and eligibility criteria through its own investment policy.
We believe that Bulgarian pension insurance companies already possess the necessary expertise, professional capacity, internal procedures, and risk management systems to adopt appropriate investment policies and assess the risk profile of different categories of Alternative Investment Funds, as well as the internal governance, controls, and procedures applied by those funds.
Under both Bulgarian and European legislation, an Alternative Investment Fund (AIF) is a form of collective investment undertaking, similar in nature to collective investment schemes and national investment funds.
Accordingly, we propose that the investment limit set out in Article 177a(8) be increased from 7% to 15% of the shares or units of a single collective investment undertaking referred to in Article 176(1), items 12, 15, and 16.
This amendment would harmonize the investment limits applicable to the various categories of collective investment undertakings.
At the same time, increasing the permissible investment in a single AIF would enable pension funds to negotiate preferential commercial terms and other investor-specific conditions that are commonly available to investors holding more than 10% of an AIF's units or shares.
During the intensive dialogue that has taken place over recent years between representatives of the Ministry of Finance, the Financial Supervision Commission, the professional associations of pension insurance companies, private equity and venture capital funds, small and medium-sized enterprises, and other stakeholders, it became clear that the principal regulatory obstacle preventing pension funds from investing in Alternative Investment Funds (AIFs) is the absence of a legal mechanism allowing pension insurance companies, on behalf of the pension funds they manage, to enter into capital commitment agreements for subscribing to or acquiring units or shares in an AIF.
This issue has also been expressly acknowledged by the Financial Supervision Commission in its letter of 10 October 2019 to the Bulgarian Private Equity and Venture Capital Association (BVCA). In that letter, the Commission explicitly stated that, under the current wording of Article 179b of the Social Security Code, pension funds are not permitted to enter into such arrangements.
The Draft Act attempts to address this issue by amending Article 177(1), item 5 of the Social Security Code, allowing pension funds to acquire units and shares in AIFs that have not yet been fully paid up.
However, this amendment does not resolve the underlying regulatory obstacle because it does not take into account the specific legal nature of capital commitments.
A capital commitment is a contractual obligation between an Alternative Investment Fund and its investors, under which investors undertake to subscribe for and pay for units or shares only when certain predefined conditions have been met by the fund and a specific investment opportunity has arisen.
This investment model represents the industry gold standard and is consistently applied by leading institutional investors, including:
This approach protects investors—including pension funds—by reducing their credit risk, as it avoids requiring capital to be invested before the fund has identified concrete investment opportunities.
The capital commitment mechanism is particularly well suited to institutional investors such as pension funds because it minimizes the likelihood that an AIF will hold idle cash balances, thereby improving the overall investment performance and returns of the fund.
Accordingly, and taking into account the Financial Supervision Commission's interpretation of the existing legal framework expressed in its 2019 letter, we propose introducing a new paragraph 4 to Article 177b with the following wording:
"(4) For the purpose of managing credit risk in investments in the financial instruments referred to in Article 176(1), items 15 and 16, a pension insurance company may enter into agreements providing for deferred performance of the obligation to subscribe for or acquire units and/or shares."
Without this amendment, there remains a substantial risk that investments in Alternative Investment Funds will continue to be an unused investment opportunity for Bulgarian pension funds. Pension funds would effectively be excluded from investing in those AIFs that have successfully attracted leading institutional investors, all of whom operate through the internationally accepted capital commitment model.
We hope that the proposals outlined above will be taken into consideration and incorporated into the Draft Act.
We firmly believe that these proposals are fully consistent with both the spirit and the overall approach of the Draft Act and will contribute meaningfully to achieving its objectives.
We remain committed to continuing the dialogue and cooperation regarding the proposed amendments and fully support both the necessity and the urgency of the reforms to Bulgaria's social security system introduced by the Draft Act.
Respectfully,
Alexander Noutsov
Executive Director
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