Ukrainian fund industry highlights Q4 2022 & FY 2022: slower growth during the full-scale russian invasion of Ukraine

After start of the the full-scale russian aggression and invasion of Ukraine on 24 February 2022, the national securities markets regulator NSSMC imposed temporary ban on almost all transactions effectively stopping the domestic markets.

The activities were resumed on 8 August 2022 (22 August for open-ended funds) reflecting the stabilised financial conditions in Ukraine under the martial law and the willingness and ability of most of the market participants to resume their activities and serve ther investors – while supporting the economy of the country and its people.

Ukrainian asset management industry, among others, has faced many challenges of the wartime and most of the local AMCs were able to address them, some by relocating within Ukraine.

AuM of the ‘established’ domestic Collective Investment Institutions (CIIs) declined by 1.9% (in UAH terms) in Q4, but grew by 2.8% for the full year 2022, to reach UAH 534.9 billion (EUR 13.7 billion). However, the number of the funds’ reports was 4.1% smaller than in Q3, which accounted at least for a part of the quarterly decline and dented the annual growth rate.

More specifically:

• ‘Venture’ funds in the corporate form remained essentially the only driver of the industry expansion in 2022, with their share growing to more than 54% of the total CIIs number (for all venture CIIs, it grew to more than 93%);
• • total AuM of the formed venture CIIs was 1.6% smaller in December 2022 than in September (in the light of a 3.4% contraction in the number of their reports), but it grew by 4.5% for the full year 2022;
• • total NAV decline by 1.1% through the end of 2022 since September and by 8.0% since the beginning of the year, to UAH 396 billion, but its share in the total Ukrainian funds’ NAV remained at 96%;
     
• Other CII categories, including all of the sectors of publicly offered funds (opend- ended, interval and closed-end ones3) experienced AuM and NAV decrease both in Q4 and for the full year 2022.

1 Formed funds which have reached compliance with the minimal asset value regulatory requirement.

2 Venture CIIs are closed-end ‘non-diversified’ funds with private issue only, mainly investing in private equity and debt, with the lowest restrictions on their activity as compared to other fund categories.

Number of formed CIIs increased for the fifth consecutive year in 2022, to 1742 funds at end December, although it slightly declined in Q4 (-0.9%, +1.8% annually).

• In open-ended CIIs (all publicly offered):
• Total NAV contracted by 17.1% in Q4 and by 19.2% for the FY 2022 and amounted to UAH 146 million as at end December.
• • the decline in the sector was predominantly due to the outflow of capital from these funds in Q4 2022 which also turned the annual flow negative;
• Net sales since October through December 2022 amounted to -UAH 27.7 million and the annual figure (except for the peroid between 24 February and 22 August when sales were prohibited) declined to -UAH 25.5 million;
• Domestic retail investors had more than 86% in open-ended funds’ NAV at end 2022, down from 88% in September as well as a year ago; however, they still comprised more than 98% of all of the sector investors;
• There were also still 5 foreign investors (non-resident institutional/corporate and individual ones) in open-ended funds in December 2022 having 5.9% in the sector’s total NAV (up from 5.2% in September).

Number of non-resident investors in all CIIs in total contracted from 419 at the beginning of 2022 and 428 at end September to 394 at end December this year.

Number of AMCs in Ukraine also contracted in 2022: from 312 to 300.

• Out of those, 255 (85%) remained active and reported on their investment and/or pension funds under management for Q4 2022, in particualr:
• • More than 98% of them had at least one venture CII under management;
• • Nine AMCs managed acting 16 open-ended funds, and 33 had 77 publicly offered CIIs in total;
• • Furthermore, 31 had 51 pension funds under management, and one managed assets of one insurance company.

3 See fund classification on the UAIB website: https://www.uaib.com.ua/en/invest-in-ukraine/cii-manual