May 2017

ASSOCIATION COLUMN: Houses and forests

Jari_VirtaThe history of Finnish funds began 30 years ago with the first Act on Common Funds. The first funds were established in October 1987.

The fund industry has since grown and become an important part of the Finnish financial ecosystem. Assets in Finnish-domiciled funds now exceed €110 billion.

Growing cross-border activity and the expansion of different types of funds have been an integral part of the growth.

Following the evolvement of EU fund legislation, there are more than 500 foreign funds marketed in Finland while the number of domestic funds is less than 500. Fund mergers – even across the border – and mergers of management companies (also known as Ucits IV efficiency measures) have become routine transactions. This reflects the fact that the Finnish market is part of wider Nordic markets with several cross-border financial groups.

An interesting side note is that cross-border mergers are not a one-way street but rather based on commercial strategies. We have witnessed them going both inwards and outwards. This is a good thing as it shows our regulatory regime is fit for purpose.

GAINING FAST
Ucits funds make for the majority of funds in Finland, but alternative funds are gaining fast. The latter include Ucits-like funds and typical alternative funds like venture capital and real estate.

Post the Alternative Investment Fund Managers Directive, there has been more demand for new types of funds. Residential real estate funds have become popular, partly due to low interest rates. It is not surprising that we also have forest investment funds, considering the importance of pulp and paper in the Finnish economy.

The Finnish society is efficient, flexible, and – Finns will be the first to admit – small. The same goes for our public authorities. The Finnish Financial Supervisory Authority (FIN-FSA) nevertheless acts in the European supervisory arena to facilitate cross-border distributions and new types of funds.

Unlike in many other countries, our regulatory regime does not have individual prescriptive regulations for each and every fund type. We have two basic regulations: Ucits and Aifs. The Aif regime is flexible in order to cater to new funds – the introduction of loan funds, for example, required no legislative changes.

Legal structures are regulated separately, which means that Aifs can be set up as partnerships, contractual funds or limited liability companies. Ucits funds are currently set up as contractual funds.

ATTRACTIVENESS
A Ministry of Finance working group is currently reviewing our fund legislation. This work is not related to the implementation of any piece of EU law but focused on increasing the competitiveness and attractiveness of the Finnish fund market.
Its objective is to make use of all possibilities included in EU regulations but also to ensure new types of funds can be launched.

Another essential element of attraction is to facilitate the use of new technology, fintech, in fund management. We are also looking to introduce the Sicav-type fund structure as an alternative legal model; hopefully making use of its basic functionalities, but as an improved and even more efficient version.

Jari Virta is head of asset and fund management at Finance Finland, the common lobbying organisation of the Finnish financial sector

©2017 funds europe