Spanish funds industry defies economic gloom
The country’s economy may be suffering from the global downturn and its own
excesses. But the domestic funds industry is doing somewhat better says Angel Martínez-Aldama, director-general of Inverco.
Spain’s economy is still battling with low growth and the highest unemployment rate (21.3%) of the whole European Union. The regional debt crisis is edging nearer, with neighbour Portugal becoming the third country in the eurozone to accept an EU and International Monetary Fund (IMF) bailout package worth €78bn over three years.
There are growing fears that if Spain is heading down the same route as Portugal, Greece and Ireland, the EU will not be able to afford another rescue deal. However, Spain’s funds industry is doing slightly better than its general economy. Spanish inflows hit a five-year high in March, according to Inverco.
The largest inflows for March of €511m were recorded by Spain’s largest group, Santander Asset Management. Invercaixa Gestion followed closely behind with new in flows of €507m. The highest outflows were posted by Caixa Catalunya Gestion, with €181m exiting the group.
What is the composition of the Spanish funds industry and how has it been affected by the global financial crisis?
There are 2,500 investment funds registered in Spain, and five years ago we had 3,050 funds registered. In 2008, there were many funds that were just liquidated or merged with another. That is why the present number is 500 investment funds less.
Assets have been reduced by about 40% in the past three years. These were funds that involved and were invested in equities, and were not supported by investors. Part of those funds was investments in Asia or equities. The funds were transferred to other funds or redeemed. We saw a switch in investments from equities to short-term bond funds or from money-market funds into other vehicles. There was a switch because, with about 40% reduction at the time, the performance was terrible – and it shocked investors.
It was the worst year in terms of performance in an 80-year history. The huge drop in returns made investors change their minds, and they tried to focus on less risky assets and move to more conservative funds.
The European debt crisis is still dominating headlines, and Spain is seen as one of the nations with a so-called ‘sick’ economy. How healthy is the Spanish funds industry?
Even a month-and-a-half, or three months ago, there were possibilities that [the European debt crisis] would impact directly on Spain. However, after Portugal’s bailout, the spread between German bonds (the strongest European economy) and Spanish bonds has been below 200 basis points. This means that, in principle, Portugal is not affecting the Spanish economy.
After the reforms taken by the Spanish government in May last year (such as continuing to reduce the salary of civil servants and increasing the retirement age to 67 from 65), things seem to be getting more in line with the austerity measures the government is taking.
Of course, the situation is not perfect, but the credibility in the markets has shown in the spread between German bonds and Spanish bonds, which is now about 180. That reflects the outlook of the Spanish economy. I do not think the situation in Portugal will affect the Spanish funds industry because our funds don’t invest in Portuguese debt.