UAIB Analytical Review of the Collective Investments Market in Ukraine Q4 2016 & Full 2016

In 2016 the third consecutive year, reduction of the number of participants of asset management industry in Ukraine – AMC, as well as acting funds under management and their investors - continued. Assets under management declined this year too.

Number of asset management companies in 2016 dropped from 313 to 295.

Number of collective investment institutions - those that have reached the norm for minimum amount of assets - declined, however the number of new registered CII for the year was more than of those that were closed - the first time in three years. During the year, venture UIF funds, as well as open-ended and closed-end diversified UIF were eliminated the most, while the number of active venture CIF continued to grow rapidly.

Total assets under management and net assets of CII in 2016 decreased for the first time - as well as growth in previous years; such dynamics was determined by venture funds, although the reduction lasted also in the sectors of other closed-end CII and interval funds. Open-ended CII for the first time since 2010 had an increase in assets and NAV.

As at 31.12.2016 the assets of the industry amounted to more than UAH 230 bln., net assets - nearly UAH 188 bln.

CII with public issue, in particular open-ended and equity funds, in contrast to the previous year and against a background of changing the trend of stock indices’ movement for rising one, mainly had positive results in 2016. The outflow of capital continued in open-ended CII for 5.5 years, but fell in several times compared to the year 2015 and in the 3-rd quarter sector received net inflows for the first time since Q2 2011.

Investors in 2016 became less in all sectors of CII, although in the 4-th quarter number of foreign companies-investors increased in interval and closed-end CII with a private issue (other than venture ones), and of foreign citizens – in closed-end CII with public issue.

The total investments of domestic companies - the largest investors of CII – in 2016 significantly reduced, while of Ukrainian citizens and foreign investors – legal entities - continued to grow. Venture funds were the most popular among the various categories of investors.

Foreign enterprises also increased the amount of their assets in open-ended CII. Share of CII assets belonging to non-residents (mostly to legal entities) in 2016 increased to more than 21%.

CIIs’ rates of return in 2016, after declining in 2015, increased. Average income of participants in open-ended CII for the year returned back into positive zone and was slightly behind the growth of the UX index and interest rates of banks’ deposits.

Closed-end CII also had positive results for the year, at that an average yield of funds with public issue was two times higher than of funds with private issue; this virtually repeated the trend of the last year.

Almost all funds among open-ended CII provided growth of the value of investors’ contributions in 2016. At that 7 funds had rates of return higher than the index of UX, 10 brought more income than deposits in euros, and two funds were more profitable that "golden" deposits.

Among diversified CII with public issue equity funds and bond funds showed the highest results for this year. First ones were promoted by growth of the stock market in mid-year, as well as by dynamics of individual participants in the 4th quarter.

Assets of private pension funds under management in 2016 increased further, while the number of funds and asset management companies that managed them, continued to decline.

Open NPF remained the largest segment by the number and total assets under management, although their weight decreased for the year amid faster growth of other sectors, in particular of corporate funds.

At the end of 2016 it was only half of NPF assets which were invested in securities (mainly in OVDP, and in professional NPF – also in corporate bonds), and a significant increase of assets in banks’ deposits provided increasing of their share in the assets of NPF. The volume of assets in securities for the year increased only in the corporate NPF, however, their weight here was also reduced to almost half. Professional NPF had the largest share of stock instruments in assets.

Number of insurance companies with assets under management in 2016 increased, while the number of AMC, which provided services for them, during the year did not change. The aggregate value of IC assets under management increased dramatically in relative terms, although its volume remained small.

Overall, results of year 2016 were mostly positive for investors of CII with public issue, in particular of open-ended and diversified funds, which were oriented on investments in equities, as stock indices mainly were moving upward during the year.

At the same time, unstable regulatory environment, in particular artificial narrowing of the stock market by administrative methods, prevented a deeper and more active growth of industry. Funds with private issue found new areas for investment activity and professional market participants - AMC adapted to increasing demands of Ukrainian stock market’s regulator, in particular to the reduction of exchanges’ listing.

Among the expected changes in the regulation of the market - further changes in regulation, in particular, increase of prudential requirements for AMC, as well as for other professional market’s participants and the general preparation of amendments on CII, taking into account regulator’s plans regarding transposition of European legislation’s rules on investment funds and asset management for the implementation of the Association Agreement with the EU and implementation of a comprehensive program of development of financial sector of Ukraine until 2020.

Expectations, which were expressed earlier by market participants regarding balanced, system development and gradual implementation of changes, remain relevant for the next year.

Expanding of capital market’s range of liquid instruments, including derivatives, to ensure portfolios’ diversification and management of institutional investors’ risk, together with a balanced and stimulating approach to the regulation of the stock market and development of its infrastructure, and broad involvement of domestic investors in the first place, as it is expected by professional market’s participants, will continue to be among the priority tasks, for execution of which they hope to work together with regulators.