The economic situation in Denmark has been stable in the recent year, despite economic turbulence in the region.
The inflation rate has remained stable but employment has fallen a little from a high level. Generally, the economic outlook looks moderately positive.
-- The fund market has gained increasing popularity as an investment vehicle, some of the reasons being an increasing pressure to save for retirement.
-- The Net Asset Value in Danish funds increased from $42.049 in June 2002 to $47.174 in June 2003, ie an increase of 12%.
-- In recent years, many private and institutional investors have adopted a defensive investment strategy and investors still flock to bond funds, especially funds investing in corporate bonds. However, increasing sales in equity funds is expected in the near future.
-- Total assets in bond funds increased 40%, as a result of large inflows and decreasing interest rates, while total assets in equities funds decreased from $16,224 million to $12,136, a decrease of 25%.
-- In the first six months of 2003 the net issues in bond funds doubled compared to the last six months of 2002, on the other hand the net issues in equities funds almost halved, see figure
-- Retail funds accounted for 95% of all net issues in the period, while institutional funds had large redemptions due to a reversion in the equity diversion trend in the pension management companies, mainly due to stringent risk assessment tests introduced by the Danish FSA.
LEGAL AND REGULATORY DEVELOPMENTS
a) REGULATORY NEWS: As a result of the new European Undertakings for Collective Investment in Transferable Securities - UCITS III directive, the Danish Investment Associations and Special-Purpose Associations Consolidated Act is currently being rewritten and the Act will implement the product directive in UCITS III.
It is expected that this Act, among other things, will implement regulations of single pricing, Open-End Investment Company - OEICs, and later, other types of Collective Investment Schemes - CIS funds, all new innovations in the Danish market.
It is proposed that single pricing shall act as a supplement to the "double pricing" system in Denmark.
Furthermore, it is proposed that management companies in the future can be owned by the depositary, in conformation with international practice. The practice is now a ban of depositary ownership and the management companies are owned by investment funds (which are organised as company-like "associations").
The Financial Business Act will implement the management directive in UCITS III.
This Act is adopted on the 4th of June 2003. The amendment to this act is not yet adopted.
The draft for investment Associations and Special Purpose Associations and the amendments to the Financial Business Act is expected to be enacted by January 1, 2004.
b) TAX REGULATIONS: There has been no fundamental change in the restrictive Danish tax regimes recently.
EVOLUTION DISTRIBUTION: Denmark continues to be a small market to foreign funds. However, the liberalised tax rules for pension funds, in late 2001, have resulted in an increase in number of foreign funds, selling shares in unit-link schemes in the second and third pillar pension system.
Foreign funds with permission to market funds in Denmark have increased to 19, in August, 2003 (including Danish Luxembourg funds).
A small number of Danish fund managers have cross border distribution into other EU-markets with a total net asset value of less than one billion US dollars.
Danish investment fund shares with a value of 1.66 billion dollars, has been registered by the Danish Central Bank as foreign owned, at the end of June 2003, which is equal to 3.5 per cent of the outstanding total (an increase from 3.6% since June 2002).
Currently, there are deliberations going on for liberalising parts of the pension systems, namely the supplementary public pension system.
The possibilities of investment management companies offering investment services, primarily in unit-link schemes, as vehicles of a more liberalised second and third pillar pension system, would depend upon the agreement between political parties.
Courtesy: MUFAP
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