Doubts hit guaranteed funds in Spain

Over 40% of Spanish mutual funds come with capital or performance guarantees, and parent banks and cajas are having to make good on their promises.

The recent €100bn lifeline for the Spanish banking system failed to impress markets and ratings agencies. Tesoro Público ten-year sovereign yields rose above 7% in less than a week. Moody’s downgraded the country to one notch above junk.

The ongoing uncertainty raises doubts about the country’s biggest fund sector – fondos garanatizados. Local banks face further drains on resources as guaranteed fund payouts rise. Assets under management in fixed and variable return guaranteed products equal 40.98% of the industry’s total, according to Lipper.

Falling credit ratings have hit funds hard, making it difficult for banks and cajas to offer guarantees and for managers to meet their obligations to investors. Fifteen funds with combined assets over €250m matured in May.

Ten of the funds failed to hit their target valores liquidativos (VL, net asset values), forcing guarantor banks and cajas to pay up. Three funds run by Ahorro Corporacíon required guarantee payments. Injections into Banca Cívica Europa Garantizado FI, Caixa Galicia Garantia 3 and Caixanova Garantizado Rentas 2 totaled over €4m, based on CNMV filings and Morningstar AUM figures.

InverCaixa is the second-largest manager of guaranteed funds, according to Lipper. Parent bank La Caixa injected €662,300 in to its recently maturing €15.5m Foncaixa Garantía Emprendedores fund.

While the payouts are something guarantors could do without, the funds affected in May were relatively small. The big players include BBVA, Santander, Bankia Fondos and Ahorro Corporación, as well as InverCaixa, have a combined €32bn held in guaranteed funds.

Garantizados have been a big sales success for La Caixa in recent years. Last year, its Foncaixa Estabilidad fund raised €2.44bn. Sales of two other guaranteed funds, Foncaixa Estabilidad Plus and Foncaixa Asegurado, helped ensure the group’s domestic sales lead for a third consecutive year.

Distribution success

Distribution success is only part of the story. The bigger the fund, the bigger the potential guaranteed payout from the parent bank or mutual guarantor, such as the Confederación Española de Cajas de Ahorro (CECA).

Guaranteed funds typically hold large quantities of local sovereign and bank debt to ensure they can meet their commitments. Portfolios are often concentrated, with single Spanish sovereign, regional government or parent bank mortgage-backed issues dominating portfolios, especially as maturity looms.

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