With changes occurring in the regulatory requirements related to investing into SIF funds, we focus our blog on the NAV discount to see if we can expect any further development in share price due to the regulatory change.
Back in 1999 Romania listed five investment funds as part of a mass privatization drive, during the process millions of citizens received a little portion of what many hoped would one day grow to become a lucrative big pie. However, years later one could conclude that the initial idea failed to live up to market expectations due to inefficient management, the slow pace of further privatizations and the exclusion of big investors due to ownership limits that have left shares in the funds trading at steep discounts to their NAV.
Last week the Romanian Government adopted the law on alternative investment funds (AIF), which repeals the normative act by which investors are capped at a 5% ownership threshold in all 5 listed SIFs.
After the mentioned vote, the law goes for promulgation to the president, and the legislator gives a period of 6 months to Fondul Proprietatea and SIFs to submit the documentation related to the qualification under one of the categories of alternative investment funds. Therefore, the mentioned act should take place in 2020.
Market Performance & Assets Structure
Historical Movement of Selected Close-end Funds’ Discount (%)
When looking at the chart above, right of the bat, one can see how improved investors sentiment had a positive effect on the discount to NAV amid the expected termination of the ownership threshold.
Among the observed funds, the highest discount was recorded by SIF Muntenia with a discount rate amounting to 50.7%, followed by SIF Banat (45.9%), SIF Oltenia (29.1%), SIF Transilvania (25.4%), and SIF Moldova (16.7%). Meanwhile, for comparison, Fondul was trading at a NAV/price discount of 12.9%. One should note that, compared to the begging of the year, all SIFs recorded a decrease in their NAV discount with some of them (Moldova and Trasnilvania) even halving their initial discount.
Meanwhile, the somewhat large discounts posted by some SIFs came despite the rather favourable asset class structure with listed equities accounting for more than half of the fund’s total assets. Furthermore, among their top holdings SIFs usually hold a significant number of shares of BET components. Thus, one might expect further interest from prospective investors. However, one should take into consideration the low transparency issue as some of the SIFs provide very little information about their business operations.
Listed Shares as % of Total Assets