Cross-Border Distribution of UCITS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2011

CONTEXT

investment of choice for local pension funds. In 1981, the Chilean Social Security System was reformulated from a defined-benefit program to a defined-contribution one. Then in March 2008, the new Pension Reform Law No.20,255 was enforced improving social pro- tection by re-defying the three pillars of Chilean pension system. Today, there are 5 pension funds in the Chilean market, heavily invested in foreign assets. Hence, UCITS registrations in the country summed up to 1,262 at the end of 2010. Those are mostly invested in the local pension funds. During 2010, as fears were mounting on the solvency of Ireland, Chile ques- tioned itself if it would maintain Irish domiciled UCITS eligible for investment in the local pension funds. The whole of the industry feared but thankfully Chilean authorities finally did not rule Irish funds out of the eligibility program. Peru is one of the South American countries that followed Chile in reforming the pension fund system. Currently, Peruvians have the choice between investing into a public (State) or a private pension fund. The private pension system, SPP, was created in 1992, modelled on the Chilean one and experienced very positive inflows over the past years, and this trend is set to continue, as on average 60 to 70 thousand new workers join these programs each quarter 26 and this number is set to grow as estimates account as much as 71% of Peruvians working in an informal economy, “which means they pay no taxes, have no bank accounts and have no access to credit” 27 or – may we add–pension. As more people enrol into the real economic system, more and more will also join pension schemes and money will even- tually continue to pour in. At the end of December 2010, foreign investment funds represen- ted 7.4% of total SPP 26 assets, most of which were UCITS. Regular business missions of industry representative bodies and continuous exchange al- low UCITS to keep developing in the region at an uninterrupted path. UCITS distribution ambitions in the continent, though, are not limited to those few Ameri- can countries. Fund houses eye those countries that are still closed and look forward to regulation change as their selling potential is huge. Thus, Brazil is today’s hot topic given the country’s population (193.7 million 28 ) and the huge growth of its economy (GDP USD 1,594bn at the end of 2009 29 , +171% in ten years). All industry international players want to make sure to capture their market share, should the country open to foreign funds’ distribution. As previously mentioned, UCITS are also well established and fast developing in the Middle East. The region – and its wealth – represents a target that is highly valued and closely watched these days. Bahrain is today the financial centre in the region where UCITS are best integrated into local market, with 739 funds sold. Given the specificities of the Middle East region, most fund houses launched or planned to launch specific products to target the region.

1.3

In countries such as Chile and Peru, UCITS are considered the foreign investment of choice for local pension funds.

26 Source: Superintendencia de Banca, Seguros y AFP, ‘’Evolución del Sistema Privado de Pensiones‘’, Cuarto Trimestre de 2010 27 Source: International Business Times, “Bargain Shopping in Peru, Chile and Brazil”, December 21, 2010 28 Source: World Bank, World Development Indicators - Last updated Apr 26, 2011, data at end 2009 29 Source: World Bank, World Development Indicators - Last updated Apr 26, 2011 GDP in current U.S. dollars. Not adjusted for inflation.

Cross-border distribution of UCITS | page 31