The young Albanian investment funds business bears enough potential for growth, says Edlira Konini, Managing Director of Raiffeisen Invest. She heads a company with a market share of 98 per cent in an environment that is still in its infant shoes but promising to outgrow them fast.
Ms. Konini, nearly 100 per cent market share is quite unusual. What’s the reason for this and what is the Albanian investment fund sector’s structure?
The local asset management business started only in 2012 with Raiffeisen Invest as pioneer, so it is still in its early stage as evidenced by market size and players. During the first four years, Raiffeisen Invest was alone on the market, but today, we have two competitors, Credins Invest and WVP Fund Management Tirana. However, instead of considering competition an obstacle, we rather see it as an incentive to increase market sophistication and expand our product line so as to provide our local investors with favorable investment opportunities corresponding to their knowledge and needs. So, I guess you can say that both our pioneer role and innovation power work in our favor.
What is the regulatory environment like compared to more developed markets?
The regulation governing investment funds is quite restrictive in its present form, but is currently under review with the aim of further aligning it with the legislation of developed markets. Once this is done, we expect a positive impact on market development and new investment opportunities.
So, one may assume that there is growth potential for your industry.
Yes, definitely! Investment funds currently amount to only 6 per cent of local banking sector deposits, so this market is de facto still untapped. Despite lower remittances in the past three years, funds from neighboring countries with low interest rates are still a good source of inflow. All in all, our experience shows that the demand for funds has been growing steadily, as you can see in our expansion to more than half a billion euros in assets under management in less than six years. Such a development reflects a growing interest, and especially in a low-interest environment investors have turned to investment funds including them in their wealth-building strategies. Add to all of this the pending legal improvements and the overall financial market development and you end up with a significant growth potential.
Would preferential taxation on income from investment funds be a good idea?
Of course, this would be beneficial for both investors and the industry in general. Investment funds would have an additional competitive advantage over standardized banking products. However, this is currently not one of the priorities of our government. But, you know, nothing is carved in stone, this may change.
What types of investment funds do you offer?
Our customers can choose between an investment fund in local currency that invests in fixed-income Albanian government instruments or a euro denominated fund investing in fixed-income products that are publicly traded locally or abroad, such as bonds issued by EU countries, international companies that operate in the sectors of finance, energy, health etc., or investment funds managed by highly reputable companies such as Raiffeisen Capital Management in Austria.. Some days ago, we launched a second fund in local currency with longer duration and higher return potential compared to the existing one, but with a minimum holding period of two years. Our strategy is to diversify the product line with new funds, aiming to gradually introduce new investment options in parallel with increasing our customers’ awareness, knowledge and comfort with this type of investment. A fourth fund denominated in euro and investing in a mix of equity and debt shall be added to our product range in 2019.
What would it take to move the sector forward?
Well, obviously, the sector’s development is a long-term process and closely linked to the development of the financial sector in general. It requires good coordination of legislative and regulatory reforms, with serious investments from those financial institutions that aim to be the main local players. The legislation governing investment funds was written in 2009, when there were no funds at all. While it supports a simple business model and does a good job in terms of addressing legal and operational requirements, it has some important limitations related to permitted investments and the type of funds that can be launched. For example, there are insufficient provisions to allow and regulate funds of funds and feeder funds, both of which would be a logical approach for an asset management company in order to expand its product range, thereby in turn attracting larger and more experienced investors from abroad.
Our regulator is aware of these limitations, and they have started identifying the areas of need and revising the legislation. I expect the new law to be approved in 2019 and to provide options for other types of funds and potential market expansion. You also have to bear in mind that the developments of both the investment funds sector and the financial market in general are linked to a functional stock exchange, where financial instruments can be traded easily by businesses and individuals. The first private stock exchange in Albania should give a boost to the market by increasing investment options for asset management companies and responding in real time to the dynamics of local economic developments. And last but not least, increased competition would certainly be beneficial for the sector development, and of course for the investors.