by Ulrika Lomas, Tax-News.com, Brussels Monday, December 14, 2009

New statistics provided by the European Central Bank (ECB) offer, for the first time, fully harmonized, complete, detailed and timely information at a monthly frequency on investment funds (IFs) resident in the euro area.

In addition to statistics on the assets and liabilities of all IFs aggregated for the whole sector, various types of IFs can be distinguished. Two different breakdowns are available: by investment policy of the IF concerned, and by type of fund. By investment policy, the breakdown is as follows:

• Equity funds
• Bond funds
• Mixed funds
• Real estate funds
• Hedge funds
• Other funds

The classification by type of fund consists of two categories: open-end and closed-end funds. Most IFs are open-end funds.

Funds are classified as mixed funds if they invest in both equity and bonds with no prevalent policy in favor of either of them.

Real estate funds typically have holdings of real estate as their main assets. They may also make these investments indirectly, through an intermediary holding the real estate; in this case, the primary assets of the real estate fund are shares/units issued by or loans granted to the intermediary.

In practice, the classification criteria differ across countries to some extent. In some countries, the investment policy is backed by specific regulatory provisions that allow an ex ante identification of IFs by the nature of their investment. In these cases, the classification of IFs is based on these national provisions. In countries where such provisions do not exist, the classification is undertaken on the basis of the prospectuses or other relevant documents which describe the investment policy of the IFs.

A definition of hedge funds for statistical purposes has been developed (included in the ECB Guideline) as follows: “any collective investment undertaking, regardless of its legal structure under national laws, which applies 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 instrument 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, statuses or by-laws, subscription documents or investment contracts, marketing documents or any other statement with similar effect of the fund.”

Funds of funds, i.e. IFs investing in shares/units issued by other IFs, are classified in the category of funds in which they primarily invest. The residual category “other funds” consists of IFs which cannot be classified as equity, bond, mixed, real estate or hedge funds. For instance, IFs investing in commodities are classified “other funds.”

The monthly release of the ECB IF statistics consists of a press release and the update of the statistics on the ECB website, including the Statistical Data Warehouse. The updated statistics are also published in the ECB’s Monthly Bulletin, Tables 2.9 and 2.10.

In addition to the euro area aggregates, national data on investment fund shares/units issued, broken down by investment policy and by type of fund, are available on the ECB website.

In Q3 2009, the euro area investment fund sector increased by 10.6% as compared to Q2, from EUR4.3 trillion to EUR4.7 trillion. This development mainly resulted from sizable increases in the prices of assets held by the investment funds and to a somewhat lesser extent from their large net sales of shares or units.

The amount outstanding of shares/units issued by euro area investment funds other than money market funds increased to EUR4,730bn at end-September 2009, from EUR4,277bn in June 2009. Over the same period, the amount outstanding of shares/units issued by euro area money market funds decreased to EUR1,256bn from EUR1,272bn.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp