1 Information Release 14 December 2012 Central Bank Data on Investment Funds 1 The Central Bank today publishes statistics for Q3 2012 on investment funds (IFs) resident in Ireland. IFs, measured by total shares/units in issue, increased by 4.4 per cent to €892 billion by end-Q3 2012, driven by revaluations of €24.3 billion and net new subscriptions of €13.5 billion. Growth was concentrated in equity and bond funds, at 5.3 and 4.5 per cent respectively, though was also evident in all fund types. During the same period, European units/shares in issue increased by 4.4 per cent to €6.3 trillion, within which equity funds increased by 5.3 per cent and bond funds increased by 4.6 per cent. 1 These data were first introduced in the article ‘The Investment Funds Industry in Ireland – A Statistical Overview’ published in Quarterly Bulletin 1, 2010. -10 0 10 20 30 40 0 100 200 300 400 500 600 700 800 900 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Chart 1: Value of Investment Funds Shares/Units Transaction Net Inflows (RHS) Value of Investment Funds (LHS) € billion Please note that the movement from Q3 2011 to Q4 2011 includes €114 billion of MMFs that were reclassified as IFs in accordance with Regulation ECB/2001/12. Please see information release of Investment Fund Statisitics, 14 March 2012, for further details. Source: Investment Funds Statistics, Central Bank of Ireland. 2 Looking at the asset holdings of Irish IFs, 77 per cent were located outside of the euro area, 14 per cent in the rest of the euro area and 9 per cent within the state 2 . Looking at the ownership of units/shares in Irish IFs, 70 per cent were held by non-euro area residents, 24 per cent by other euro area residents and 6 per cent by Irish residents. Sovereign bond investment holdings increased by 6.5 per cent to €160 billion in Q3 2012. UK sovereign bonds, the largest country holding of Irish IFs, benefitted from inflows of €3.1 billion to close at €46.9 billion. Holdings of German sovereign bonds experienced a net inflow of €1.2 billion to close at €20.1 billion. French sovereigns experienced outflows of €0.5 billion despite positive revaluations of €0.9 billion to close at €11.3 billion, perhaps indicating market preparations for a potential ratings downgrade. Spanish and Italian sovereign bonds had inflows of €0.5 billion and €1.8 billion respectively, to close at €1.4 billion and €8.4 billion, indicating a favourable response to ECB policy measures. Holdings of ‘outer-core’ EU sovereigns, such as the Netherlands, Belgium and Finland remained largely static at low levels, of €3.5 billion, €2.4 billon and €0.3 billion respectively. Irish sovereign holdings remained small at €0.4 billion. Holdings of US and Japanese sovereign assets remained relatively stable at €39 billion and €2.2 billion respectively. It is worth noting, however, that investment in non-government paper far exceeds that of sovereign bonds, accounting for €430 billion. Table 1: Debt Securities – IF Holdings by Sovereign and Private Sector – Selected Countries € billion Sovereign Private Total 160 430 of which: US 39 155 UK 47 52 Ireland 0.4 22 Germany 20 14 France 11 21 Net inflows into holdings of Monetary and Financial Institutions’ (MFIs) assets amounted to 5.5 per cent of total holdings, to a stock of €203 billion in Q3 2012, comprising €176 billion in paper and €26.9 billion in shares. UK MFIs experienced the largest inflows, up €5.6 billion 2 These figures exclude unclassified assets which account for €75 billion, or 7.6 per cent, of total assets of €985 billion. 3 to close at €34.4 billion. Exposure to German MFIs moved the opposite direction, experiencing outflows of €2.6 billion to close at €10.5 billion. Spanish and Italian MFIs remained static at €1.4 billion and €1.1 billion respectively. Irish MFI holdings increased marginally to €3.5 billion. The non-financial sector experienced net outflows of 2 per cent to close at €364 billion, split between €235 billion in equity and €129 billion in commercial paper. Investment Funds by Category Bond funds, which accounted for €373 billion of Irish IFs by shares/units in issue, experienced inflows of €12 billion and positive revaluations of €4.2 billion, amid generally increasing bond prices. This continues a longer term trend of significant inflows into bond funds, which comprised 42 per cent of Irish IFs by end-Q3 2012, compared with 24 per cent at end-Q1 2010. Equity funds, which accounted for €290 billion of IFs, saw positive revaluations of €12.9 billion and net transactions inflows of €1.7 billion, in line with strong global equity markets over the quarter. Equity funds have experienced positive revaluations since late 2011, following a sharp negative adjustment in mid-2011. Hedge funds increased in value to €79 billion, driven largely by revaluations of €2.2 billion amid a net transactions outflow of €0.3 billion. The revaluation performance was tempered by the fact that some hedge funds assumed short positions in a positively performing market. Hedge funds have not outperformed other investment strategies in the year to date. Other funds, comprising mostly mixed funds 3 , experienced negligible inflows of €0.2 billion, despite positive revaluations of €5.1 billion, culminating in an increase in overall stock to €152 billion. 3 These also include real estate and other unclassified funds. 4 -2 0 2 4 6 8 10 12 14 16 18 Equity Bond Hedge Remaining Chart 2: Change in Value of Shares/Units by Investment Fund Category, Q3 2012 Change in value of investment fund shares/units (excl. reclassifications) Transactions Revaluations € billion Source: Investment Funds Statistics, Central Bank of Ireland. 5 Notes to Editors These data were published under the requirements of Regulation (EC) No 958/2007 concerning statistics on the assets and liabilities of investment funds (ECB/2007/8), which was passed on 27 July 2007, obliging investment funds to report quarterly balance sheets. Reporting is obligatory for all investment funds resident in Ireland. The full data series for Ireland is available from the Central Bank website while euro area statistics are available from the ECB website. Type of Fund Definition Equity funds Equity funds are investment funds primarily investing in shares and other equity. The criteria for classifying an investment fund into equity funds are derived from the public prospectus, fund rules, instruments of incorporation, established statutes or by-laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect. Bond funds Bond funds are investment funds primarily investing in securities other than shares. The criteria for classifying an investment fund into bond funds are derived from the public prospectus, fund rules, instruments of incorporation, established statutes or by-laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect. Mixed funds Mixed funds are investment funds investing in both equity and bonds with no prevalent policy in favour of one or the other instrument. The criteria for classifying an investment fund into mixed funds are derived from the public prospectus, fund rules, instruments of incorporation, established statutes or by- laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect. Hedge funds Hedge funds, for the purpose of IF data collection, mean any collective investment undertakings (CIU) regardless of its legal structure under national laws, which apply relatively unconstrained investment strategies to achieve positive absolute returns, and whose managers, in addition to management fees, are remunerated in relation to the fund’s performance. For that purpose, hedge funds have few restrictions on the type of financial instruments in which they may invest and may therefore flexibly employ a wide variety of financial techniques, involving leverage, short-selling or any other techniques. This definition also covers funds that invest, in full or in part, in other hedge funds provided that they otherwise meet the definition. These criteria to identify hedge funds must be assessed against the public prospectus as well as fund rules, statutes or by-laws, subscription documents or investment contracts, marketing documents or any other statement with similar effect of the fund. 6 Real estate funds Real estate funds are investment funds primarily investing in real estate. The criteria for classifying an investment fund into real estate funds are derived from the public prospectus, fund rules, instruments of incorporation, established statutes or by-laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect. Other funds Other funds are investment funds other than bond funds, equity funds, mixed funds, real estate funds or hedge funds. Open-ended IFs Open-ended investment funds are investment funds, the units or shares of which are, at the request of the holders, repurchased or redeemed directly or indirectly out of the undertaking’s assets. Closed-ended IFs Closed-ended investment funds are investment funds with a fixed number of issued shares and whose shareholders have to buy or sell existing shares in order to enter or leave the fund. . 1 Information Release 14 December 2012 Central Bank Data on Investment Funds 1 The Central Bank today publishes statistics for Q3 2012 on investment funds (IFs) resident in. incorporation, established statutes or by-laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect. Bond funds Bond funds are investment. investment contracts, marketing documents, or any other statement with similar effect. Other funds Other funds are investment funds other than bond funds, equity funds, mixed funds, real estate funds