Financial Markets: Increasing Complexity, Maintaining Stability

3–5 July 2019, ST. PETERSBURG

    The market and regulator are to discuss how to make investments in Mutual Investment Funds (MIFs) more popular

    According to the latest CB data, fiduciary management agreements account for a minimal share of agreements concluded by professional stock market players with their clients. Yet it is in this sector that we see the highest client activity. At the roundtable “Fiduciary Management: Prospects of the Industry” on June 30, Representatives of the industry, the regulator and SRO are to discuss ways to attract retail investors to the market for collective fiduciary management.  

    As part of the 25th International Financial Congress, trustees will hold a roundtable to discuss the industry’s problems. Representatives of the trust management market (Member of the Board of IC Region Andrei Zhuykov, CEO of IC Alfa Capital Irina Krivosheeva), professional SROs (Chairman of the Board of NAUFOR Alexei Timofeev) and the regulator (First Deputy Governor of the Bank of Russia Sergey Shevtsov, with Director of the Department of Collective Investment and Trust Management of the Bank of Russia Phillip Gabunia serving as moderator).

    According to a recent review of the key performance indicators of professional stock market participants published on the Central Bank’s site, fiduciary management agreementsaccount for a minimal share of agreements concluded by professional stock marketplayers with their clients: actually, only 1.7% of the clients of non-credit financial institutions and only 0.1% of those of professional financial and banking participants have signed them.

    The research authors point out, however, that it is in this segment that the highest client activity is observed. In a previous review of KPIs demonstrated by mutual and incorporate investment funds, for instance, the regulator noted the growing value of net assets (VNA) owned by MIFs by 12.2% (to RUB 2.3 trn in 2015). The key growth driver is foreign currency bond funds, owing not only to foreign currency reappraisal but also to the recovery of the debt market in general. Most successful management companies have increased their clients’ investments by 60–70%. The main trend over the past year has been the advent on to the collective trust management market of new investors who see their investments in MIFs as an alternative to rouble bank deposits, which have lost their appeal because of low interest rates.

    Investment strategies are advised based upon a customer’s objectives and preferences, its risk profiling and financial capacity, says Irina Krivosheeva, CEO of Alfa Capital management company. The most suitable instrument for a retail investor, especially a novice investor, is the acquisition of state securities via an individual investment account subject to a 13% tax refund from the state up to RUB 400,000 annually plus investment incomes. This benefit substantially increases the combined yield and turns out to be more profitable than a deposit. You can open an individual investment account online now. Acquisition of Eurobonds of Russian issuers has become a trend of the past 18 months.”

    Irina Krivosheeva says that well-off investors are capable of acquiring products with potentially higher yields and risks, including industry- or country-specific shares, or, on the contrary, shares with a focus on definite market ideas, say, some assets that are deemed undervalued. Time horizons are longer here.

    The past year has shown that retail investors have money they are prepared to invest. Yet the trust management market is not growing as fast as one would like, since no tradition of mutual investments has yet developed. People of Russia lack sufficient information and financial expertise. Revolutionary changes in the technological approach to investors accessing the market (digitisation of the industry) and development of new share distribution channels are called on to promote trust growth and attract private equity on to the mutual investment market. Moreover, changes in the regulation of management companies also back this nascent trend. Starting in 2016, for instance, a new Central Bank regulation came into effect introducing universal requirements on the rules for stock management. In the years to come, trust managers will switch to IFAS, which will also increase the transparency of their business. New rules adopted for calculating the net asset value of MIFS allow more flexibility for management companies. The approaches to the list of MIF expenses have also been revised and changes in the approach to the composition and structure of assets have been announced. Individual investment accounts that can now be used to buy shares and claim preferential taxation on the return on investments will most likely contribute making fiduciary management more popular as well. What else does the regulator plan? And what efforts does the market itself intend to make? You may hear answers to these and other questions at the roundtable discussions on 30 June.