* New fund to start with up to $3.5 bln
* 35-40 percent to be directed toward private sector
By Patrick Werr
CAIRO, Sept 28 (Reuters) - Egypt's state pension fund will begin directing billions of dollars into private investments when a new pension law comes into force in January 2012, the deputy finance minister said on Tuesday.
In the first year under the law, a new state pension system that works on the basis of defined contributions, instead of a current arrangement based on defined benefits, will collect an estimated 15-20 billion Egyptian pounds ($2.6-3.5 billion), Mohamed Maait told reporters at a conference on Tuesday.
A portion of that money will be invested in the private sector and a board of directors will be appointed to decide where it goes, Maait added.
The board "will take the responsibility for implementing the strategy for investing around 35 to 40 percent of the assets of the pension fund," providing at least 6 billion pounds for private investment, Maait said.
The rest will continue to be directed toward Treasury bills and bonds and other traditional government investments, he said.
The new law will allow employees who have contributed under the old system to enter the new system if they choose, leading to the new system's large initial size.
Under the old pension system, the fund is worth about 450 billion pounds, of which 40-42 billion pounds have been placed in private investments, Maait said.
Contributions under the new system, which comes into force on Jan. 1, 2012, should increase by an annual 3-5 billion pounds in subsequent years as more employees are covered, Maait said.
"What we are doing now is to diversify our investment portfolio," he said.
Among areas to be targeted for investment are private equity, real estate, land and corporate bonds, he added.
"Currently we are drafting the executive regulations. We haven't finished yet. Also, it will be subject to review," Maait said. (Editing by Tom Pfeiffer)