UAIB Analytical Review of the Asset Management Market in Ukraine in 2014

05 May 2015
The asset management industry in Ukraine in 2014, despite all the challenges and tests generally kept an upward trend. At that, quantitatively, in the context of market participants, it began to narrow, but the volume of assets grew constantly, promoting business’s amalgamation. At the same time, sectors of public funds, in particular open-ended CII, were sensitive to negative changes in the stock market and in the country as a whole, and also – by the investment strategy and structure of assets accordingly- equities funds.
 
The outflow of capital from open-ended funds lasted for 3.5 years, several of these CII left the market, and there were no new ones established in 2014. Instead, as opposed to reducing the total number of venture CII, sector’s assets’ increasing this year continued and was actually equal by volume to the indicator of 2013. All categories of investors, except foreign citizens, increased their presence in CII.
 
The number of asset management companies in 2014 continued to decline and at the end of the year it was 336.
 
The number of collective investment institutions – as recognized ones, which reached the complience to minimal norm of assets, and also registered funds (available in USRJII) - diminished for the first time. At that, this time the reduction affected also venture funds, though the sector of open-ended CII, which is reducing during the third year, was narrowed relatively the most. Total number of operating interval and closed-end funds declined the fourth year in a row.
 
The total net assets of all CII in 2014 almost saved the pace of growth – both through venture as well as other closed-end funds.
 
During the year the overall net outflow of capital from open-ended CII was registered every month, except May and December, and although quarterly indicators remained negative, but, by the year’s results, the flow continued to decline. However, its share in reduction of sector’s NAV was even slightly increased. During the year both balanced and equity funds, as well as bond ones, suffered the biggest losses caused by the exit of investors. At that both aggressive funds, as well as conservative ones were among the leaders by annual yield.
 
CII rates of return in 2014 generally increased: among open-end CII an average indicator more than tripled compared to the last year, for closed- end ones it increased - more than half. Two-thirds of open-ended CII ensured growth in the value of investments - after the third in 2013. Among the closed- end and interval CII the ratio was almost remained: about half and over 40% of funds, respectively, demonstrated growth. Almost half of open-ended CII had returns of investment in 2014 at least at the level of UX index. A number of public (non-venture) funds could also compete for the yield with bank deposits in Hryvnia.
 
Asset management of non-government pension funds in 2014, mainly demonstrated positive results, changing again the trends of the last year. Quantitatively, as well as CII market, this industry continued to decline, although assets under management returned to the rising trend. Open NPF remained the largest segment, as by the number of funds (80%) and by the assets under AMC management (71%).
 
Insurance companies with assets under management in 2014 increased in quantity, and their total assets in AMC service increased by more than half.
 
Among the most urgent and pressing problems of the industry - the complexity of compliance with regulations and legal requirements regarding the composition and structure of assets which is practically impossible in the conditions of termination of securities’ circulation by emitents located in the occupied territories (in the ARC and ATO areas). Also, with the increasing number of problematic banks under the existing unfavorable for funds queue of creditors' claims satisfaction and impossibility of obtaining refunds from the Deposit Guarantee Fund for individuals, institutional investors had to bear losses or fix the growing share of problematic assets.
In addition, more and more actual becomes transition from quantity to quality: the growth of the financial and regulatory burden, objective stricter requirements for the qualification and professionalism of the asset management companies’ specialist will contribute to market concentration and amalgamation of asset management business. Increasing of financial markets’ risks as well as more and more reduction of list of high-quality assets and tools for investing by institutional investors – especially by pension funds – would also add to that.
 
The key areas that have great prospects for the development of the industry of collective investment and asset management, as well as the stock market as a whole, may be an introduction of new financial instruments, in particular, infrastructure bonds, long-term government bonds which are indexed to inflation, and derivatives - to hedge risks. Extremely important is also to stimulate further development of the 3rd pillar of pension reform (NPF) and promoting the implementation of the 2nd, savings, level (Accumulation fund, occupational pension scheme), and also increased use of CII in maintenance of the programs of private-state partnerships.
 
The development of the financial sector in the coming years will take place in the conditions of adaptation of Ukrainian legislation to the European Directives and the implementation of the Association Agreement in terms of financial service markets. AMC will have to raise performance standards, including risk management and CII’ disclosure.
 
Raising of financial literacy of population remains also an important aspect, which requires joint efforts of public authorities and market’s participants.
 
However, large-scale fundraising from retail investors - citizens of Ukraine on the stock market, the transformation of population’s savings into long-term investment resources is possible only after implementation of real reforms in Ukrainian economy, providing reliable protection for investments and restoring confidence in financial institutions.
 
For the full report please see attachments below.
 
For enquiries please contact: Anastasiia Gavryliuk (Senior analyst & International Relations Coordinator) – gavrylyuk@uaib.com.ua.

Assets Under Management

Open-ended funds' NAV Dynamics

NAV of CII (excluding venture)

NAV of Venture CII