Tuleva management report 2022

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Dear Tuleva members and investors,

The past year was hectic. Inflation reached the highest level seen in recent decades. A war was started in Ukraine. World stock markets fell by nearly 15%.

As you know, when saving with Tuleva, we set aside a piece of our salaries every month and use it to buy more shares in the world’s largest listed companies. When stock prices go up, the value of our assets goes up. With the stock markets down last year, we saw a loss in our accounts after several very profitable years. Our assets do not always grow – that is part of the strategy.

The main danger investors face in uncertain times is not stock market fluctuations but bad decisions motivated by anxiety. Even experienced fund managers can make foolish moves when they read bad news. At the same time, the marketing departments at some fund management companies can try to take advantage of the bad news and lure you into a higher-fee fund.

“We pull the brakes at the right time!”

“Our funds were the only ones with a positive return!”

Reality is a good reminder of why it’s not wise to pay a high fee to a fund manager who promises to work magic.

Funds advertised as actively managed by Swedbank, SEB, and Luminor crashed last year, just like prudent index funds. While both follow the same pattern, the funds with higher fees consistently yield less over the long term.

As an exception, LHV’s high-fee XL and L funds earned a small profit last year. Unfortunately, these funds have traditionally underperformed compared to the market average. Thanks to staying in an index fund, I and others who have saved with Tuleva from the beginning have more pension assets even after last year’s loss.

The graph shows the change in the unit prices of the Tuleva World Stocks Pension Fund and the two largest actively managed pension funds of each bank from 1 April 2017 to 28 February 2023. Tuleva fund current fees are 0.37% per annum, while the fees of larger bank funds are 2 to 5 times higher. Source: Pensionikeskus

The best recipe for accumulating capital for a better future is simple. Start early, invest in stocks through a low-cost index fund, and stay on course – through good times and bad.

We at Tuleva do not pretend to be able to predict the future. We are simply going to buy approximately three thousand more shares in the world’s leading companies next month. And again the next month. And so on all the time. Only in this way can we be sure that our wealth will grow with the world economy and not depend on the wellbeing of any single region or economic sector. The more diversified the portfolio, the lower the risk.

What can you do to help yourself as you save money with Tuleva? Remember that ups and downs are common in the markets. If you want to save your nerves, follow the wisdom of Jack Bogle, the voice of common sense in the financial world: invest regularly and don’t peek into your account.

It makes me very proud to see that this is exactly how the vast majority of Tuleva investors tend to behave. Investors in our funds fidget much less than clients of bank funds. I wish us all determination for the future!

What did we achieve in 2022?

If you only have 1 minute:

  • 65,000 people are already saving with Tuleva funds, and our assets are about to exceed 500 million euros. Tuleva is the only fund manager whose asset volume increased last year.
  • Tuleva investors made more than one-third of all third pillar contributions in Estonia and, this spring, received nearly 9 million euros in income tax refunds from the state.
  • Tuleva’s actions are evidence-based and consistent. We do not try to predict where the markets will swing next year, but focus on the most important priorities: how to help as many people as possible to invest at low costs.
  • To help make life in Estonia better, we set ourselves an ambitious goal: we want to reach 100,000 determined investors in the coming years.

Read more:

Tuleva 100,000: our next big goal

Nearly 4,000 people have already started saving in Tuleva funds. Our assets are about to exceed the 500 million euro mark. This is several times more than we originally predicted. A more detailed summary of last year is presented below. First, though, let me tell you about the next challenge we want to tackle.

From a “smart club” to a more prosperous society

Thanks to the initiative of Tuleva members, more than a fifth of Estonian second pillar investors have already decided to choose a low-fee index fund. But 450,000 people are still paying high fees to banks in other types of funds. Only 130,000 people use the third pillar to save money with its powerful tax advantage. More than a third of them, by the way, save with Tuleva.

Thanks to the initiative of Tuleva members, more than a fifth of Estonian second pillar investors have already decided to choose a low-fee index fund. But 450,000 people are still paying high fees to banks in other types of funds. Only 130,000 people use the third pillar to save money with its powerful tax advantage. More than a third of them, by the way, save with Tuleva.

Tuleva is currently something of a “smart club”. Our typical investor has an above-average level of education, financial literacy, and income. I am convinced that Tuleva members did not come together to make better pension funds just for themselves. Our goal from the very beginning was to make life in Estonia better.

Life in Estonia gets better if as many people as possible purposefully save for their future, together with us, leading to fewer burdens for all future generations. This is Tuleva’s mission. The stronger we can grow, the more effectively we can carry out our mission.

Our mission is for all of Estonia

We have proven that our model works. Now is the time to scale it – to help many more people save money smartly. We have set ourselves a very ambitious goal: we want to reach 100,000 determined investors in the coming years.

The goal is not just 100,000 people with something trickling into a Tuleva pension fund but 100,000 people who with determination accumulate enough capital for their future. To make this goal measurable, we define these “determined investors” as people who use low-fee second and third pillar pension funds to regularly invest at least 15% of their income for their future.

Currently there are nearly 65,000 investors in Tuleva pension funds. Just under 4,000 of them are determined investors. Others have made a good start, choosing a low-fee second-pillar fund or starting to save in the third pillar. But we can help them make the pension pillars work even more efficiently.

Growth helps us fulfil our mission in many ways. If we had 100,000 determined investors in Tuleva, our assets would exceed 2 billion euros. This would bring efficiency to Tuleva, help us further reduce fees, and earn profits for Tuleva members, who made our revolution possible.

When more people in Estonia smartly save money for their future, there will be fewer burdens on all future generations.

We are not going to grab anyone by the sleeve in a shopping mall to get there; we are going to build on the foundation that we have already laid. What exactly needs to be done to reach this goal?

  • We want to activate the existing 65,000 investors so that they make the most out of saving with Tuleva and consistently move towards their goals.
  • We want to continuously find new channels and ways to reach new investors.
  • We want to make an additional savings fund so that those who have exceeded the possibilities of the pension pillars can save more, if they wish. We want to make a simple and transparent fund for saving for children.
  • We want to continue helping the state to improve legislation to remove the obstacles standing in the way of pension-focused investors.

At this point, it is important to remember how Tuleva works. Two crucial aspects distinguish us from traditional fund managers:

  • First, we only offer good funds. We don’t have good options hidden among bad ones.
  • Second, we have low fees that will continue to fall because we know that high-fee funds will underperform low-fee funds in the long run.

We also know that our success is based on trust. Unlike banks, we don’t build trust with fancy headquarters or costly marketing campaigns. Our trust has been established and remains based on three main values:

  • We keep things simple and clear because we know that unnecessary complexity (noise) prevents people from deciding for themselves.
  • Our investment strategy is consistent. We do not change it depending on market fluctuations because we know that those who start saving early and stay on course during market ups and downs are best placed to get the most out of every euro.
  • We do the right thing even when no one is looking. Our interests are not in conflict with those of the investors.
To grow faster, we want to strengthen the team and raise capital

Tuleva is now where every startup dreams of being. We have successfully grown with minimal resources. We have a strong mission, a clear strategy, and motivated people. With a sharp focus and the active participation of our members, we have grown Tuleva to be much bigger than our small team. Now is the time to help ourselves so that we can exponentially amplify our achievements so far.

To reach our ambitious goals for the coming years, we must first build a scalable organisation. We want to invest more boldly in growth.
This year, our focus is on building our team and analysing the opportunities for raising growth capital.

A four-member management board: strong players to accompany Tõnu

The beginning of 2023 has already brought important changes in Tuleva’s management. First, Erko Risthein is joining Tuleva’s management board as the head of technology and product development. Leading development sprints with me, Erko has been one of the key people in our extended team. It’s great news that we were able to convince him to really commit to Tuleva!

Our board member Mari Kuhi has decided to step aside after being on the board for five years. Mari joined us as a controller, led the launch of our third pillar fund, joined the board alongside me in 2017 and kept Tuleva’s back room in impeccable order as chief operating officer. Kristel Raesaar, who has been in charge of our communications since the beginning, is also moving on. Empathetic communication and clear messages that have strategic agility in their delivery have been critical to Tuleva’s success. We need to ensure that growing an informed and supportive community, actively listening to our investors, and spotting minor and major opportunities continue to be the priorities of the team’s daily work in the future.

We now want to find two more strong players for the management board, in addition to myself and Erko, who can bring their experience, skills, and fresh ideas to Tuleva. Are you such a player, or do you know someone who would be a good candidate? Let us know!

  • A growth-oriented COO who will bring to the table the lessons learned from previous successful projects and is able to drive process optimisation and team development.
  • A communications and marketing manager who will help synthesise our successful principles of growing an active community with new, scalable initiatives.
Together we will choose the best way to raise capital

To accelerate growth, we want to invest in hiring people, strengthening our brand, and expanding our community. The trust we have built so far, proven growth momentum, active community, and growing cash flows give us a number of great opportunities to raise capital. We will not use membership capital for growth investments, because we have made a clear promise to the contributors of the capital to keep it invested in a broad-based index fund together with our pension assets. We can use membership fees and the association’s articles that allow for the creation of purpose-based capital, to which members have the opportunity to contribute under agreed conditions. We also have the option of selling Tuleva management company’s shares to one or more strategic investors. In the long term, we may also consider listing the shares of our mutual fund management company.

Raising capital is successful when it supports our mission, increases member satisfaction as their assets increase in value, and allows us to offer good employees an incentive package that includes stock options.

The idea that Tuleva could consider listing its fund business raises a legitimate question: is it not against our original principles? Tuleva must never start playing a zero-sum game with the investors in our funds. When pension investors do well, we do well. When we lose sight of the mission, we lose our edge. And when Tuleva is successful, life in Estonia will get better.

The chairman of our supervisory board, Kristi Saare, expressed this best during a meeting: “We proved that it is possible to set up low-fee funds. Perhaps it will soon be time to prove that it is also possible to set up a better listed company.”
One of the first tasks for Tuleva’s new management board in 2023 is to analyse the options and bring the most beneficial proposal to Tuleva’s members for a decision.

2022: We moved towards our goal despite strong headwinds

Our asset volume grew by 12% last year while the volumes of all other fund managers shrank. The asset growth from the addition of new investors and contributions was 23% last year.

The graph shows the volume of assets in three Tuleva pension funds by four-month exchange periods (EP). Source: Tuleva, data from Pensionikeskus.

Third pillar contributions increased by 20%

We made regular “nudges” through email and other channels and improved the user experience online. Now you can make a contribution to our third pillar fund directly on the Tuleva website and you can also set up a standing order. Another obstacle has been cleared. Try it out here.

Pirje, our help desk manager, does a great job in increasing contributions to the third pillar by tirelessly answering people’s questions. For example: how and by how much can you contribute to the third pillar? The state could certainly do a lot toward simplification. As a small but important achievement, we also helped the Tax Board to finally publish uniform and understandable information about contribution deadlines.

Our market share in third pillar contributions in Estonia is 35% (1). I am very glad that this is where we have achieved the most success. It is also important that our investors stay on course and invest through good times and bad. This is how we ensure a good return in the long term.

1,676 third pillar investors also brought their second pillar investments to us

The continuously growing third pillar contributions lay a solid foundation for the future. For the volume of assets to grow fast enough for us to be able to contribute even more to growth and reduce fees, it is still important that investors bring their second pillar assets to us.

1,676 people is just under 7% of the 26,000 people who placed only their third pension pillar with us at the beginning of 2022. Last year, we took a deep look at what was holding back the rest. We found that the main obstacle continues to be a general lack of knowledge in and mistrust of the second pillar, which is why people postpone the decision and look for reasons to avoid change. A typical excuse is the desire to spread risk, for which keeping money in a similar fund but with higher fees does not help in any way.

In addition to regular reminders, last year, we also made additions to our web application, where the size and impact of fees are now more clearly visible. I believe we still have a lot of work to do in this area, and it will have a major impact on our asset volume growth.

In 2022, third pillar investors brought us 18 million euros worth of second pillar assets. If all those who only save in the third pillar with us also brought their second pillar to Tuleva, it would immediately add nearly 200 million euros or 40% to the volume of our assets, and would also increase the monthly contributions.

We added 6,900 new investors during the year

Finding new users is a major challenge and expense for any growing business. By building a community and an online platform and by vigorously utilising the strategic opportunities that have arisen, we have grown many times more than any other fund management company could with such a small team while spending so little. It is hard to find another fintech that has expanded at such a low cost per new customer, especially in the field of long-term savings products.

Over 80% of our new investors come through the recommendations of existing investors. Our main task is to make sure that our website and messages are simple and easy to understand. If we, the current investors at Tuleva, understand Tuleva’s investment principles well, we can effectively and confidently recommend Tuleva to our friends.

We also use every opportunity to increase outreach. Carefully responding to media inquiries is one way to do this. From time to time, we also have opportunities in the general public discussion to offer explanations and help new people get to know Tuleva. For example, this January, we added a new function to our website that lets users quickly see how much the state compensated them for their second pillar contributions This brought us over 3,000 new users who had not previously logged in on the Tuleva website.

The number of people leaving is several times smaller compared to others
During the last year, 2.6% of the second pillar assets in Tuleva were transferred to other pension funds or pension investment accounts. This is three times less than other fund managers. Thanks to this, Tuleva was the only fund manager whose number of investors and volume of assets increased last year (3).

It is hard to find another growth company in the financial sector with as low a turnover rate as ours. This is an important indicator of satisfaction – in my opinion, much more important than any indicator found through a survey.

Our assets also decreased due to people withdrawing their money from the second pillar (and to a lesser extent from the third). In 2022, nearly 11 million euros were withdrawn from Tuleva funds. Although the money accumulated in pension funds is ultimately meant to be used, the bulk of the withdrawals belonged to people who stopped saving in the second pillar before early retirement age. We try to help people carefully consider the decision to withdraw their savings. It is gratifying that the percentage of people leaving the second pillar among Tuleva investors is three times lower than in the pension funds of banks (3).

A preliminary analysis has been completed for our additional savings fund

We made preparations to create an additional savings product and identified our legal and technical options. As the first step, we can launch an alternative fund that does not require an additional licence. Operational issues (AML, collection of contributions, record keeping, etc.) must be resolved at the beginning of the year. After that, we will have to find a way to integrate the new products into our user journey without complicating our website.

Financial results: low costs and a sustainable margin

In the past five years, our revenues have grown by an average of 40% per year to 1.1 million euros. The market downturn slowed our growth last year to 12%. The bulk of our revenues are pension fund management fees, the amount of which is directly related to market fluctuations. We also earn income from the fees for joining the association.

In addition to the market decline, the corporate sustainability (ESG) strategy implemented in the autumn also had a short-term impact on slower revenue growth. We are confident that in the long term, implementing an ESG strategy will not increase our costs. We have also promised investors that the funds’ current fees will not increase. In the short term, however, we had to cover additional costs of nearly 30,000 euros at the expense of our margin (2). We are finalising negotiations with BlackRock on a new model portfolio to restore our margin to previous levels.

The image shows the averages for second and third pillar pension funds and the current fees for the fund management company’s cheapest fund, according to Pensionikeskus. Tuleva calculations as of 21 February 2023.

Low costs are an important prerequisite for achieving good long-term returns. Our low costs are not a trick to promote a single lower-volume fund. At Tuleva, all investors pay a low fee, which is used to cover fixed costs and guarantee returns for Tuleva members.

Tuleva’s current pension fund fees, management fees, and margin from 2018 to 2022. The difference between the current fees and the management fee is the fee paid to BlackRock funds. The difference between the management fee and the gross margin is the fee paid to the custodian bank, Pensionikeskus and the guarantee fund.

Our fixed costs increased by 30% during the year to 0.7 million euros. We have two types of fixed costs: operating costs to keep our business running and growth investments. The expenses for most of the growth investments accrue immediately, while the new investors added and the assets they bring will continue to earn us additional income for years to come (4).

From the very beginning of Tuleva, we have followed the principle of not using accumulated capital to cover current expenses. In accounting terms, this means that our EBITDA (earnings before interest, taxes, depreciation, and amortisation) must remain positive.

Tuleva consolidated earnings before depreciation and financial costs/income (EBITDA), 2016/18 to 2022.

We distribute our earnings according to our articles of association. First of all, all members receive a membership bonus depending on the amount of their assets held in Tuleva pension funds. The membership bonus for 2022 totalled 82,756 euros. Since the launch of our pension funds in 2017, our members have earned a total of 267,244 euros in membership bonuses, which has been reinvested in the Tuleva membership capital. You can see the amount of your accumulated membership bonus by logging into the web application. (Note! The membership bonus for 2022 will appear after the end of the general meeting.)

Tuleva’s net profits are also directly affected by the investment income on our membership capital. Our membership capital is invested mostly in the units of our own pension funds, according to the terms and conditions; its value fluctuates with the world market. In 2022, instead of investment income, we had an investment loss of 0.8 million euros. Since 2016, we have earned a total of 1.2 million euros in investment income.

We understand that the value of our equity fluctuates with the global market, and we do not allow ourselves to be disturbed by these fluctuations. Our equity capital is in sufficient reserve to ensure compliance with regulatory requirements even if global markets fall sharply.

Tõnu Pekk
Tuleva founder and fund manager

You can find the Tuleva association, Tuleva Fondid AS, and Tuleva pension funds audited reports here.

(1) Pensionikeskus data and Tuleva’s estimation of the payments made to insurance companies. Tuleva funds currently account for approximately 20% of all third pillar assets.

(2) More specifically, the deposit fee we pay increased because the share of ETFs temporarily exceeded 50%, and the cost of the funds in the portfolio also increased, since all the planned funds applying BlackRock’s ESG filter were not yet available to us at the time of the transition.

(3) According to Pensionikeskus, Tuleva’s calculations.

(4) In 2022, we capitalised 87,000 euros worth of expenses, primarily for software development. The detailed expenses are presented in the income statement of our fund manager Tuleva Fondid AS.

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