TIRANA, Apr. 30- The number of investment funds in the end of 2018 went from three to five. Regardless of this expansion and the increase of the offer for investment alternatives, the net assets value in these funds shrank by more than 9 percent compared to the last year, reaching an overall value of 535 million euros. Financial experts and also fund representatives themselves admit that the main effect of this contraction has been the performance of interests, both for the euro and the domestic currency. Under the pressure of non-attractive interests, poor financial consumer education, lack of fiscal incentives and a capital market still unformed, investment funds remain far from potential. However, the year 2019 is seen with more optimism from all sides.
As the investment funds market was expanded by two new funds, the net invested assets of these funds in our country marked a drop at the end of 2018. Official sources from the Financial Supervisory Authority (FSA) showed that the net assets value of these funds was 535 million euros, with a drop of 9.12 percent from 2017. The funds have been experiencing a growth due years following the facilitating policies from the Bank of Albania regarding the deposits interests in Lek. But 2018 showed a contraction on this cycle, which according to experts was expected.
The pressure of low interest rates in euro but also the fluctuation of lek are of the main reasons which affected the results. For most of these funds members the investments have matured and it is seen as a moment of retraction to shift the investment into a better moment later. Blodin Cuci who is administrator of Caesar Investment Advisory Services has said that a good part of the investment funds’ net assets value drop in Albania is explained by the low or negative interest rates for euro. He also added that the fluctuation of the net assets value should not be seen with high concerns.
“It should be explained for the public that the performance of the investment funds is is directly affected by the performance of interest rates. In the short run, investors should not be concerned by the net asset value fluctuations, since the very nature of the investment in a fund is long-term,” said Cuci.
According to him in practical terms if the annual historical performance of the investments varied in 6-8 percent, then the expected performance of the investment funds in domestic currency during 2019 will be around 3 percent, precisely because of the environment with low interests. Even Edlira Konini from Raiffeisen said that the net assets value drop has been affected by the developmental effects of the international financial markets, which are characterised by geopolitical tensions, like the trade conflict between China and USA, or Brexit.
“An investment fund exposed to financial instruments which are marketed in foreign stocks and emitted by foreign issuers, will necessarily follow the trend of those markets,” said Konini.
Konini added that the performance drop which characterised most of the global funds last year, had its negative for the Albanian investor as well. The latter increased the level of withdrawals from the fund and reduced the investments to a minimum, resulting in negative net inflows which reduced the value of assets under administration. The Albanian investor on the other hand belongs to a category of investors who are most vulnerable to volatility in the price of the fund quota and therefore react faster to unstable market situations.
The investment funds market share
During 2018 there were five investment funds that exercised their activity in the investment fund market, the investment funds “Raiffeisen Prestige,” “Raiffeisen Invest Euro,” “Raiffeisen Vizion,” which are managed by “Raiffeisen Invest;” the investment fund “Credins Premium” under the administration of the managing company “Credins Invest;” and “WVP Top Invest” fund, administered by the company “WVP Fund Management Tirana sh.a..”
About 29,420 members invested in these funds, with a decrease of 6.07 percent compared to the end of 2018. Only 12 of the total investors were legal entities. Regarding the share of members for each market fund, official data show that Raiffeisen Prestige had 78.35 percent of total market investors, followed by Raiffeisen Euro with 11.91 percent, and then Raiffeisen Vision with 7.11 percent.
Credins Premium had only 2.46 percent of the investors share, to be followed by WVP Top Invest, which was licensed in the middle of last year by the FSA, with 0.16 percent. In terms of net assets value distribution, Raiffeisen Prestige had over 380.97 million euros as net asset value at the end of 2018, Raiffeisen Euro 83.48 million euros, followed by Raiffeisen Vision with 49.44 million euros. Credins Premium had 15.4 million euros and WVP Top Invest 624.1 thousand euros.
Where the money was invested and profits
The tendency to invest in low-risk instruments has made the dominant share of investments to be made to government securities, although compared to the previous year this share has declined. In 2018, investment in government bonds accounted for 61.25 percent of fund assets, with a decrease of 6.65 percent compared to the end of 2017. Corporate bonds accounted for 13.12 percent of total investments made by funds, while treasury bills accounted for 17.49 percent.
Other investments accounted for 3.94 percent of the total, while a modest share was invested in shares, with only 0.11 percent. Actually, investment in stocks seems to be the new 2018 in comparison with 2017, when there was no such investment. Regarding the profit or loss of companies it results that at least Raiffeisen Invest, which includes the Prestige, Euro and Vision funds, has resulted in a profit for the period of 1.24 million euros, Credins Invest with a profit of 29 thousand euros, and WVP Fund Management Tirana a loss of 12 thousand euros, justified by the fact that it started its activity only in July last year.
Financial education affects negatively
Almost all market players agree that one of the reasons why investment funds remain modest in our country is poor financial education of consumers. Arton Lena who is administrator of WVP Top Invest said that Albanians remain skeptical of these forms of investment, sometimes seeing them as fraud schemes. To change this mentality, according to him, much work and cooperation of many parties need to be done.
“The financial education of the public is low, which is combined also with the lack of trust. Individuals have little to no information about investment funds as savings alternative and how they work, by treating it as a fixed maturity and rate deposit,” said Estela Koci from Credins Premium.
Edlira Konini who is administrator to Raiffeisen Invest said that apart from the modest financial education, another limitation the investment funds are facing, is the absence of a functioning capital market and the lack of useful fiscal incentives that would urge citizens to invest in these funds.
Expectations for 2019
This year is expected to be positive for investment funds. Blodin Cuci said that the low-interest environment makes investment less attractive for treasury and government bonds, which also makes bank deposits unattractive. The environment is however quite stimulating for issuing bonds for domestic corporations. At such periods investors are attracted to buying corporate bonds to reach a higher interest rate. In this regard then the expectations for 2019 are driven by a revival of the private bond market issuance market to attract investors.
Edlira Konini of Raiffeisen Invest also confirmed a positive performance. She said that 2019 has been good years for capital markets. An environment of low interest rates is currently on the market, which has positively impacted the performance of all the funds under administration. This year is expected to be positive for investment funds, as the new “On Collective Investment Undertakings” law is supposed to be implemented within the year.
Even Estela Koci from Credins Premium underlined that 2019 has started well and is expected to have an increase in the number of members investing in these funds. She said the number of investors in investment funds is projected to be steadily increasing, as it is currently the best and most flexible investment option for both individuals and institutional investors.
The new draft law
The fall of the assets value during 2018 in management for investment funds is not seen as a sign of discouragement for the development of financial markets in the country, at least by the Financial Supervisory Authority. This institution said that this has come as a result of low interest rates, but the positive signals for this market should also be seen in terms of expansion with new funds, which last year were two. Another positive dynamic is expected to give the market a new legal framework that is currently in the consultation phase and to be adopted within this year.
“During 2018, despite the decline in asset management assets, due to the low interest rate environment, especially in foreign currencies, the number of funds both in foreign currency and in local currency. Namely, the Authority has licensed two new investment funds, thus increasing the opportunities for investors,” the FSA estimates.
A new draft law focusing on investments in collective enterprises developed with experts assistance of the “Strengthening the Supervisory Capabilities of the Financial Supervisory Authority, Capital Market Development Focus” project, funded by the Swiss State Secretariat for Economic Affairs (SECO) and supported by the World Bank, is currently under discussion. The FSA confirms that this bill aims to complete the legal framework in accordance with the European Union directives, namely the UCITS 4 or “Collective Investment Under Investments in Transferable Securities,” or the “On Alternative Investment Fund Managers” (AIFMD) Directive.
“The draft law also aims to regulate new forms of fundraising, such as key funds, supply funds, or umbrella funds. Also, the draft law regulates the activity of alternative investment fund administrators, which are all kinds of funds that are not classified as ‘Collective Investment Undertakings in Transferable Securities’,” underlined FSA.
Focusing on the most important aspects of this draft, the regulator emphasizes that a very important aspect of the new bill is the increase of transparency towards the investor. According to the FSA this is accomplished through increased demand regarding the fair valuation of the net asset value as well as disclosures. Based on the best practices of the European Union the draft law makes a classification for investors in:
- Professional investors who are experienced assessors of investment risks, such as banks, securities companies, insurance companies, collective investment undertakings, pension funds, etc.
- Non-professional investors, or otherwise retail investors belonging to the retail market, where most individuals who do not understand the risks of investing, thus require a higher level of care and transparency.
Also, the draft law brings more provisions regarding the merging and fusion of funds, or for the funds storage, liquidation and closure, and depository management companies. Another important aspect has to do with increasing FSA competencies, such as undertaking investigations in comparison to inspection, penalties for minor offenses, and domestic and cross-border regulatory cooperation. Finally, provisions have been made regarding cross-border management and marketing of collective investment undertakings to comply with the requirements of the European Directive.
Financial education under consideration
One of the cramps faced today which limits the development of financial markets in the country is consumer financial education. The FSA however is planning and will be launching some steps in the function of financial education, which will also increase consumer confidence in the markets that this institution has under surveillance. FSA said that public financial education is a very important factor for the development of markets the agency supervises. FSA has engaged in concrete actions to increase consumer confidence and education for underlying markets. During the past year and in progress, it has been involved in information and education activities, in accordance with the “On growth of consumer/investor confidence in supervised markets (2017-2020)” strategy.
Also, the agency publishes various warnings from FSA to investors periodically in a special section on the “Beware” page. In this section are also the warnings of international institutions in the capital markets, such as the International Securities Commissions Organization (IOSCO) and the European Securities and Markets Authority (ESMA). In the context of increasing transparency towards investors and the regulation of financial markets in relation to investment funds, the Authority has adopted several regulations that relate to the key information that is given to the investor periodically, the liquidity management of the funds, transactions with related parties, or parties belonging to the same financial group.
“With regard to the draft law ‘On Collective Investment Enterprises’, all supporting regulations will be drafted, which will be approved by the FSA Board once the new law comes into force,” said FSA.
