Spain has introduced legislation to enable feeder fund structures as well as relaxing legislation on...
Spain has introduced legislation to enable feeder fund structures as well as relaxing legislation on funds of funds.
The new laws will open up possibilities in the domestic investment market as funds of funds become more economically-viable and feeder funds are allowed in the country for the first time.
Banco Sabadell has become the first bank to set up master feeder fund structures under the new legislation.
Previously, a fund of funds was treated as any other fund, with 5%-10% limitations on any one asset. This has proved unwieldy, as a fully-invested fund would therefore comprise many funds. This limit has been raised to 45%.
Commenting on the changes, Bruno Aguilar, director of Credit Suisse Asset Management in Spain, said: "This should make it easier. With the previous legislation, you had to speak to between 10 and 15 different asset managers for deals procedures."
The second change is the relaxation of withholding tax law. Since the introduction of the tax at the end of 1998, managers had to cope with a 20% tax liability when switching between funds. Liability for the tax now occurs only when the investor redeems.
The introduction of the master feeder fund structure opens up many possibilities in the Spanish market where distribution of investment products is almost exclusively the domain of banks. Efficiency savings could now be more easily exploited.
Aguilar said: "Imagine a big Spanish bank with a fixed income fund and, say, three different feeder funds with their own private labels and their own fee structures that would feed the master."
As well as allowing banks to merge some of their funds together, it will also mean that when banks merge, they will be able to keep the branding of their respective funds while streamlining their management.
Faced with Spain's distribution structure, fund managers might also find a use for the feeder funds by allowing them to run huge master funds while pushing their distribution through many outlets.
The legislation should have been introduced by the end of last year, but following delays it looks like it will now only be fully incorporated in April after the general election. However, the legislation is already partially in effect.
José Manuel Garcîa Serrano, general manager of Madrid-based fund management group BI Gestion, said: "The law has been approved but it is pending further regulations through royal decree. It is likely to become law after the general election. But funds of funds and master feeder funds can already be authorised."
Despite the fact the legislative process has not quite run its course, one master feeder fund has already been authorised by the CNMV, the Spanish investment fund regulator. In mid-February, Banco Sabadell set up master feeder fund structures for funds investing in Japanese equities and a second investing in Latin American equities.
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