We have the second smallest mutual fund industry in Europe – 25.07.2022

The asset value of investment funds in our country is only 4% of GDP, only Bulgaria is below us In the Netherlands, Sweden or Switzerland, the assets of the funds exceed the value of the GDP Adrian Mitroy, Professor of Behavioral Finance: “Growth industries are financed by equity; we lack entrepreneurship, which would have brought more impetus”

Our country has the second smallest investment fund industry in terms of GDP among the countries that are part of EFAMA (European Fund and Asset Management Association), only Bulgaria is inferior to us, as the data we studied reveal.

Mutual funds had net assets of €9.6 billion in April, according to EFAMA data, equivalent to just 4% of GDP last year, a low level even by regional standards. The European Association reports assets by category of funds, collective investment schemes, those traditionally associated with investment funds, which had a net asset of 3.8 billion euros in April, equivalent to 1.6% of GDP and alternative investment funds, a category in which we We include SIFs.

In Hungary, a country with half our population, net assets of investment funds amounted to nearly 20 billion euros, in the spring, equivalent to 13% of GDP, with the mention that there are alternative investment funds with a more massive presence. For Poland, the value of the funds’ assets was 10% of GDP, in the Czech Republic 8%, Slovakia 9%, and Bulgaria, the country next to which we have secured the last places in most European hierarchies based on skills, knowledge or wealth the ratio was 2. %.

In general, the lowest weights are found in the countries of Eastern Europe, followed by the countries of the South, while for some countries in Western and Northern Europe, the value of the fund’s assets in relation to GDP exceeds 100%, such as the Netherlands, Sweden or Switzerland, which indicates that there is likely to be a A direct relationship between the level of development in a country and the investment fund industry.

Adrian Codirlaşu, CFA Romania: “As financial education improves, so will investments – through the stock exchange and through funds”

Adrian Codirlaşu, Vice President of CFA Romania, believes that one of the reasons why the value of mutual fund assets is so low in our country compared to GDP is poor financial culture.

The analyst told us: “We have a small share of investments in funds, and the share of investments in the stock market is also small. I think that the situation can be attributed to the lack of financial culture. In Romania, the financial culture is very low – the lowest in Europe. Publication of a rating in which Romania was lower than African countries. So there is a lot of room for improvement, and with the improvement of financial education, investments will also increase – both through stock exchange and through funds.”

According to the Association of Romanian Banks (ARB), our country ranks high in terms of the level of financial education both in the European Union and in the world – Romania ranks 123 out of 143 countries.

Adrien Mitroy: “The middle-aged or more advanced generation has a reluctance to banking, financial and investment”

Adrian Mitroi, a CFA analyst and professor of behavioral finance, argues that the depreciation of assets relative to GDP mainly reflects the problem of financial culture.

The analyst told us: “We note that the situation is somewhat similar to the degree of financial intermediation in Romania, which is much lower than the average in Western Europe, which indicates that it is mainly a problem of financial culture. This is manifested including by the Romanian lack of confidence in banking services. Online, in a credit card or in a money manager.Insurance products, voluntary pension funds – tools that are specific to individual decision are very poorly represented. Alternatively, those that are enforced by certain rules – like the second pillar – are functional and underrepresented Much better “.

The behavioral finance professor stresses that, in fact, financial behavior varies with generations and incomes.

“The younger generation has digital skills, a well-paid job, a (private number) pension and consumes a lot to maintain social appearances. It is the generation that is very interested in cryptocurrencies – tools that represent great risks – and is trying to access financial wealth faster. Estimated that That there are a million Romanians who have digital currencies (…) and the generation in middle age or more advanced, which has a reluctance to banking financial and investment services. And distrust of the money manager does not come from the fact that he may steal his money, but does not return enough. Psychologically , people feel that they are not protected from inflation, that they are not rewarded for the sacrifices they make. I believe the manager maintains his real return, and serves them a real negative return (…) and in the case of a perception that the purchasing power of deposits or investments is constantly eroding, mistrust emerges, The world is shifting towards consumption or trying to access financial wealth faster,” says Adrien Mitroy.

Equity fund assets account for nearly half of the total in Europe, compared to just 12% here

In addition to the difference in size, there is also a significant difference in structure between mutual funds from Europe and ours. According to EFAMA data, in April, European equity funds accounted for 45% of total assets, while funds and bond funds accounted for 35%. On the other hand, at the end of the first quarter, the weight of stock funds was only 12%, and bond funds represented 70% of the total, according to the latest report of the Financial Supervisory Authority.

Adrian Codirlaşu sees an explanation that comes from the degree of accessibility of the instruments, meaning that stocks are more accessible for direct investments.

“With us, direct investment in stocks is much easier than investing in bonds. Especially since there are few stocks listed on the Bahrain Stock Exchange and one can build a diversified portfolio of 10-20 stocks, without having to buy mutual fund investments in stocks. Bonds (not including government securities) They are much more difficult for an individual investor to access.In some cases, they have to go to the counter, they are not listed, etc. There are a few bonds listed in BSE, but they are very liquid, which means high Transaction costs. Whoever wants to exit (from the position) loses the return – that is, if he finds a counterparty. Instead, he buys units from the fund and exits when he wants without additional costs, apart from those of the administrator. It is about access to tools,” he told Us. Vice President of CFA Romania.

Adrian Mitroy: “It is possible that the financial citizen of the future will have to make investments through schemes with very low costs”

Adrian Mitroi sees, in essence, that the low proportion of equity funds actually reflects the structure and finances of the economy.

His House of Lords stated: “Before the pandemic, bond funds offered protection against devaluation and a yield of little, a little higher than that of the bank – two components sufficient. The third component, risk acquisition – through equity – requires several things, but essentially what the job is. Which ones do you have and what your career prospects are.”

The behavioral finance professor added: “There is one very important thing – growing industries are financed through equity. However, Europe in general and Romania less so are not important launching pads for large growth companies – which are financed by equity. In the US there are The culture of investing and risk-taking in entrepreneurship, which has made this nation so powerful. In Europe, finance is mostly bank-based and studded with corporate bonds. And Romania is a prominently sovereign country (not in the sense that the large-scale bond market is dominated by government bonds) – there are a number Few corporate bonds (…). We lack entrepreneurship, which would have brought more momentum.”

Of course, there is the question of how to encourage the population to invest more, and Adrian Mitroi believes that “there must be well-guided and highly targeted policies to encourage and restrict behavior, which actually fuel the benefits of individual portfolio building.”

Thus, the state pension will be supplemented by private pensions that an individual builds through frequent and long-term investments, says the behavioral finance professor. “The pension should be the culmination of effort, not anxiety. (…). Perhaps this is what a financial citizen of the future looks like, forced to make investments through schemes with very low costs.”

With us, the second pillar of pensions is such a system, through which employees contribute monthly to the special pension fund. In the history of investment funds in our country, there were two episodes, the Mutual Fund of Entrepreneurs and the National Investment Fund, the collapse of which in 1996 and 2000 shook confidence in mutual funds at that time.

NB:

In the above chart, only the assets of investment funds from European countries with a population of more than five million are shown, for which there are data from EFAMA and Eurostat. Even with countries with a population of less than five million, Romania maintains its penultimate position in Europe from the point of view of net assets of investment funds / GDP ratio. The other countries in our region with data in EFAMA are Croatia, at 5.2% and Slovenia at 8.5%, according to our calculations.

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