Quarterly Bulletin Q3 2013

42
Financing Developments
Quarterly Bulletin 03 / July 13
in the Irish Economy
Table 1: Investment Fund Debt Security Exposures to Selected Countries
Country
Net transactions Q1 2013
(€ billion)
Debt Securities Issued by All Sectors
Stock end-Q1 2013
(€ billion)
Net transactions (as % of
end-Q4 2012 stock)
US 15.4 170.4 10.2
UK 5.3 61.1 9.5
Germany 0.8 12.8 6.9
France 1.3 13.6 10.3
Italy 0.4 11.0 3.8
Netherlands -0.1 5.1 -1.1
Spain 0.8 5.2 16.8
Source:
Investment Fund Statistics, Central Bank of Ireland.
The underlying data provides some evidence
that investors were more cautious, however,
than implied by overall transactions inflows. IFs
channelled just €4.1 billion in net terms into
equity assets, the strongest performing asset
class in the quarter. This compares to
€34 billion of net inflows into debt security
assets, of which €11 billion was accounted for
by safe haven flows to US and UK sovereign
debt. This pattern was driven by a strong
portfolio allocation preference for debt securities
over equities among both hedge and mixed
funds. Inflows into euro area debt were
reasonably strong, though the impact of the
debt crisis appeared to linger, amid political
uncertainty in Italy and discussions on a financial
assistance programme for Cyprus. Flows into
Italian debt were relatively weak and there was
only limited evidence of the unwinding of safe
haven flows last year from peripheral to core
debt, as shown in Table 1. Some evidence of
an appetite for risk was seen in a €6.8 billion net
inflow into US non-financial corporation debt. In
addition, investors in IFs channelled
€10.4 billion into mixed funds, which have
relatively unconstrained investment strategies,
though net inflows to hedge funds amounted to
just €2.7 billion.
Box 2: Overview of Recent Growth in the Irish Investment Fund Industry
By Patrick Hughes
Introduction
The last four years have seen increased volatility and extended periods of uncertainty in global
financial markets. Nevertheless, the Irish investment funds (IFs) industry has more than tripled
in size since data was first collected in Q4 2008, with total assets under management (AUM)
growing from €349 billion to €1.1 trillion 4 by the end of Q1 2013.
To put this growth in context, total assets of Irish resident banks and other monetary
financial institutions (MFIs) have fallen from €1.4 trillion to €804 billion over the same period.
Furthermore, the Irish IF industry has expanded at a faster pace than that of the euro area as a
whole. In December 2008, Irish authorised IFs accounted for 7.8 per cent, or €339 billion, of
the AUM of all euro area funds of €4.8 trillion. As of March 2013, Irish IFs have almost doubled
their share of euro area IFs to 14.8 per cent, or €1.1 trillion, of €7.6 trillion.
4 €114 billion of MMFs were reclassified as IFs in November 2011, split between bond funds (€112.6 billion) and other funds
(€1.4 billion).