Investors want tax incentives

Greece’s 23-billion-euro ($29 billion) mutual fund industry will push for fresh tax incentives to reverse the declining trend in the pool of assets it manages, the industry association chairman said yesterday. Hard hit by a stock market crash in 1999, the industry, an important source of capital for expanding businesses and a buyer of Greek government debt, is still struggling to recover. «The shock of 1999 wounded retail investors, the main mutual fund client. As a result, this segment missed the good returns of the last three years,» Giorgos Papoutsis, the new chairman of the Association of Greek Institutional Investors, told Reuters in an interview. The association, which includes mutual and closed-end funds, has suffered a sustained shrinkage of its assets. Foreign competition has also grabbed a slice of the pie. «We believe supply-side solutions are needed to boost demand; incentives for the end client to invest for the longer term,» said Papoutsis, also head of National Bank’s fund management arm Diethniki since 2001. In the last three years, Greek mutual funds have seen 6.82 billion euros of net outflows. The biggest chunk, 4.78 billion, has taken place since January this year, mostly hitting bond and money market funds. «Those who left didn’t come back to invest again. Retail investors also missed the capital gains from the convergence of interest rates when Greece joined the euro. They were mostly parked in repos and T-bills, not in bonds,» Papoutsis said. Greece’s fund industry now numbers 26 mutual fund managers, mostly bank subsidiaries, and 10 listed closed-end funds. Its members also include asset managers of institutional portfolios and real estate investment companies. New look The mutual fund industry has changed since the late 1990s. Outflows aside, its product range has expanded, offering a greater variety of investment vehicles, including funds investing abroad and funds of funds, Papoutsis said. «For our industry, it’s important to preach how to invest and not how to trade. How to form portfolios of mutual funds for the longer term. This is a big bet for the industry,» he said. In order to improve the industry’s fortunes and tackle the challenges it faces, the perception on the minds of retail investors must be improved, he said. «We need tax incentives, not tax cuts, to boost interest in investing via the industry’s vehicles. Exemptions on taxable income, pension plans, can revive demand for mutual funds,» Papoutsis said. Mutual funds pay a 0.003 percent tax on the assets they manage, a load some market watchers say is hurting the industry and should be removed. «This tax is not the most crucial issue for the industry. It has a bearing on money market and bond funds, where returns are lower than stock funds,» Papoutsis said. «There has to be a broader, more spherical look into how the industry is taxed.» (Reuters)