Greek funds require fresh action to stem shrinkage

Greece’s 21-billion-euro mutual fund industry needs tax incentives and other measures to reverse asset shrinkage and redemptions in the last three years, its new head said yesterday. The industry, an important source of capital for growing businesses and a buyer of Greek government debt, has struggled to recover after a stock market crash in 1999 and its assets have shrunk by about one-third since the end of 2004. «Despite a positive market environment in the last three years, after 2004 Greece’s mutual fund industry has been plagued by significant outflows,» Aris Xenofos, CEO of EFG Eurobank Fund Management and the new chairman of the institutional investors association, told Reuters in an interview. «Despite good returns by Greek mutual funds and a wider spectrum of choice, assets are down to 21 billion euros from 32 billion at the end of 2004.» Greece’s fund industry now numbers 22 mutual fund managers, mostly bank subsidiaries, and eight closed end funds. Its members also include real estate investment companies and managers of institutional portfolios. Outflows aside, the product range has been enriched with a greater variety of investment vehicles, including funds investing abroad and funds of funds, Xenofos said. The mutual fund industry’s assets under management, currently about 10 percent of the country’s gross domestic product (GDP), trail significantly EU averages. This means there is room for assets to at least double if action is taken, Xenofos said. «In Europe mutual funds are the basic investment tool, the industry enjoys steady inflows to funds. By contrast, in Greece the mutual fund is not (the basic tool),» he said. «At an institutional level we need to deal with a deficit we face – a current lack of dedicated savings plans for the longer term as a second pillar to state pensions, which would ensure steady inflows, and the need for tax incentives.» The priority for the association’s new board will be to push for talks with the finance and labor ministries, and stock market authorities for a new action plan to strengthen institutional asset management, Xenofos said. As things stand, only equity growth funds enjoy a small tax incentive, an exemption of up to 3,000 euros for longer-term mutual fund investors. Tax incentives need to embrace all types of funds to build a culture of longer-term investing, he said. The mutual fund industry, which relies on an average management fee of 1.2-1.3 percent plus commissions for revenue, has seen its tax liability increase in the last two years. Fund managers’ now pay 0.005 to 0.006 percent on average on the assets they manage, up from 0.003 percent before. In Greece’s equities market, foreign players enjoy the upper hand. Based on recent statistics, they own more than 50 percent of the equity market’s available free float. Greece’s stock market has a market capitalization of 155 billion euros. With about 20 percent of the industry’s assets invested in equities, this means Greek mutual funds own 4 to 5 billion euros of the market’s total capitalization or just 3 to 5 percent. «Without tax incentives, long-term pension plans and commissioning state pension fund asset management to the industry, foreigners will be the main player in Greece’s capital market,» Xenofos said. «They shape the climate in the market.»

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