If they choose to stay as they are now and do not modify their investment portfolio in any way, they will no longer be regarded as monetary funds, which are the safest mutual funds, as of June 30, according to the requirements of the National Securities Commission (CNVM).
To comply with the new rules, the eight local monetary funds, which manage more than RON3.83 billion for 113,000 clients, have to reduce the risk for their investors even further. Monetary funds carry the lowest risk of all funds because they invest in bank deposits and government paper, which many investors see as equal to bank deposits.
Investment in such funds is not guaranteed, though, unlike the money put in bank deposits. Equity funds are the riskiest there are because they invest in stocks of listed companies, whose price many fluctuate heavily from one day to another.
The requirements of the National Securities Commission, issued at the beginning of this year to implement changes in European rules stipulate: “To remain monetary funds after the new provisions, the current monetary funds have to restructure their investment portfolio so as the weighted average maturity will not be any longer than 60 or 120 days, among others. The funds that do not want to restructure their portfolios will no longer be regarded as monetary funds and will have to the change their name if it includes the word “monetar” [the term used in Romanian for monetary fund i.e.],” said Radu Toia, head of the regulation and licensing department of the commission.
The new regulations, Toia added, also mention the credit rating and require the fund to invest in instruments with the highest two short-term rating levels available. “This provision is being discussed in Brussels and it is possible that monetary funds may not be conditioned on the rating of the instruments assigned by rating agencies but according to the internal rating models.”
The monetary funds’ yield is 7% for the past twelve months, slightly higher than the yield of bank deposits.
The much shorter ‘lifespan’ of the instruments monetary funds will be allowed to invest in will translate in lower risk but also lower profits for investors, fund managers say.
The first fund to make a decision was Raiffeisen Monetar, which saw the modifications coming as early as the end of last year and changed its name to Raiffeisen RonPlus, choosing to keep its investment strategy unchanged. Raiffeisen RonPlus is the largest mutual fund in Romania, with more than RON1.54 billion in assets.
BCR Monetar, the second largest mutual fund in the country, with RON1.53 billion in assets, chose to remain a monetary fund, said Nicolae Albu, chief investment officer of Erste Asset Management, which manages BCR Monetar.
The manager of Simfonia 1, the oldest monetary fund in Romania has not made a decision yet.
“We have not decided yet. Rebalancing the portfolio under the new European regulations is very difficult because Romania does not have a wide range of fixed-income instruments with short maturities and with a high rating, either,” said Dan Nicu, general manager of BRD Asset Management.
Andreea Gheorghe, general manager of asset manager Intercapital Investment Management, too, agrees it is difficult to adjust to the new standards. This company has recently decided to rename the monetary fund to iFond Conservator, while keeping investment strategy unchanged. (EUR1=RON4.3537)
(English version by Loredana Frățilă-Cristescu)