Hard times for mutual funds, tighter supervision looms ahead

The yield of Romanian mutual funds, as small as it is, could be in for a new a time of decline. The reason is not the decline in interests, but the enforcement of new regulations. The new provisions lower the limits allowed for funds to resort to a series of investments, i.e. the highest-yield ones, for the sake of cutting risks.

The most profitable funds on the Romanian market have to drop part of the investments that made them most of the money until now, that is the commercial paper, whose yield is nearly twice higher than that of the banking deposits and bonds.

On the other hand, the regulations prohibit funds to invest more than 20% in banking deposits, on the grounds that investors can very well make such placements by themselves, without having to pay a fee to the management company.

In other words, the mutual funds are bound to invest at least 70% of the amounts received from investors in shares, bonds or government securities.

Most of the stock market funds did not have a bright start of the year, and the requirements to broaden their portfolio and to secure investment liquidity compels them to buy shares in a large number of companies, although the Romanian capital market is hardly rich in investment options.

If the slightly increasing trend of the interests on the banking market continues, the deposits could come to outrun the bonds, because the interests on municipal bonds are indexed only at certain moments.

The funds that invest in government securities almost exclusively, such as Simfonia 1 or Plus Fidelity, have barely managed to keep up with inflation, given that the yield of the government securities, as low as it is, becomes even lower after a management fee is deducted.

The foreign investment funds may invest on the forex market, sell borrowed shares, hoping for a drop in prices or invest in derivatives. The Romanian funds are either not allowed to invest in such instruments or are bound by very strict limitations.

What might come out of this? The mutual funds could become less and less attractive to investors, and the management companies would have to rise fees in order to survive. This would be yet another cause for a drop in yields.

The fund managers are saying the investors who do not want to be forced into protection against risks – and gains, for that matter, have other options. “The regulations are more lenient when it comes to venture capital funds and the individual investment accounts managed by specialised companies,” Doru Puiu Tiberiu, BCR Asset Management manager explained.

vlad.nicolaescu@zf.ro