Mutual funds – compiling data in income and services BOP Working Group Eurostat November 2012 Document BP/12/49 Item 20 of the agenda Statec, MAC3

Introduction -Preliminary remarks -LU_BOP: shared competence and responsability BCL – STATEC (BOP/NA) -LU_BOP: results 2011 (national concept, million EUR) 2 ItemExportsImports Goods Financial services Non financial services

3 UCIs in Luxembourg – general aspects (1) UCI(TS): Undertakings for collective investment (in transferable securities) Number of UCIs: (by end of September 2012) of which umbrella funds => total number of entities: entities Net assets: bn (Sept 2012) Main characteristics: in principle: no employment, no offices generally: no fees as revenue in most cases: income is capitalized (not distributed)

UCIs in Luxembourg – general aspects (2) Management companies of UCITS: 179 entities, employment Other management companies of LU UCIs: 200 entities Supervisory authority: Commission de Surveillance du Secteur Financier (CSSF); Changing (legal) environment: Directive 2009/65/EC of July 2009 (UCITS IV Directive); Directive 2011/61/EU on alternative investment fund managers (AIFM Directive) Huge impact on LU gross external statistics (iip included), but, in principle, inflows and outflows should largely cancel out 4

MIP – Scoreboard additional data Source: Alert Mechanism Report from the Commission (14/02/2012) UCIs’ assets are considered (generating interests) in contrast to related liabilities (units issued) 5

The current procedure - origine -No specific treatment foreseen in BPM5 (1993) -European Monetary Institute – BOP Financial flows and stocks task force: Portfolio investment recording on an accruals basis; Sub-Group 1: Recording of income on an accruals basis for collective investments institutions, Money market instruments and other bonds (November 1997); partially based on NA concepts -January 2001: ECB (WGBP&ER) transmits the EMI report to the IMF (= basis of the MBP6 procedure) 6

The current procedure – main aspects -All income (on foreign and domestic assets) is assigned to the investors, regardless if it is distributed or not -Time of recording: complete coincidence for investment income on liability and asset side -All income assigned to the investors = PI dividends (debit) -Offsetting (credit): - Management fees: implicitly passed on to the investors - Reinvestment (PI, Liabilities, Equity) -Real dividend payments: PI (reduction in liabilities) 7

The current procedure – geo breakdown - The counterpart of PI liabilities (e.g. purchase of shares on stock exchange) is mostly unknown:  PI liabilities – transactions and related income : only A1 requested but: Geo - breakdown for services is requested - Data source: annual reporting to the supervisory authority (CSSF): Annex VI - COUNTRY IN WHICH THE UCI IS MARKETED «A specific list shall include the main countries in which units or shares of the UCI (to be classified by ISO codes) are marketed with an estimate of the percentage of shares or units invested in each country.» 8

Financial services LU_credit: Management fees assigned to non-resident investors PI dividends attributed to investors (debit IMF item 340) are always the counterpart of the assigned financial services LU_debit: mainly retrocession by the management companies of fees to non-resident promoters and advisors If retrocessions take the form of dividends (or reinvested earnings) relevant entries are made under income on direct investment (debit) 9

Management company – example PL (1) (PL = Profit and Loss account) 10

Management company – example PL (2) 11

Mangement company – example PL (3) 12

Management company – example PL (4) 13

MBP6 (1) - Financial services: the NA/EMI(ECB) procedure is confirmed; see: Asset management costs taken out of income (§ ) - Investment income: the rationale of the NA/EMI(ECB) procedure is confirmed (saving of investment funds is always zero); see: Investment income attributable to investment fund shareholders (§ ) But Splitting in dividends payable and retained earnings  If distribution of holding gains: reinvested earnings are negative - New data requests (Regulation 555/2012): only counterpart A1 for debits (PI income, investment fund shares, dividends and reinvested earnings) 14

MBP6 (2) - Theoretical example: an UCI earns interest of 10 and makes holding gains of 10  If dividend payment of 8 the records are (debit): dividends 8, reinvested earnings 2  If dividend payment of 12: dividends 12, reinvested earnings -2 -« Superdividends» (§11.27): distributions out of sales of assets or accumulated reserves = withdrawal of equity -ECB workshop October: contributions from Luxembourg and Banco de Portugal 15

Outlook - Changing (legal) environment Restructuring or rationalisation of LU based management companies (synergies) LU management companies establish branches abroad (in 12 countries by end of 2011) Freedom to provide services (management companies having their registered office in other MS) - LU project: achieve full consistency for services and income (BCL, BOP, NA), with a focus on geographical breakdown of services 16

THANK YOU for your attention 17