https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_184566
Argentina’s New Mutual Fund Requirement Is Credit Negative for Funds
On 21 September, Argentina’s Official Gazette published Resolution #644 of the Argentine Securities and
Exchange Commission mandating mutual funds to increase their holdings of small and medium enterprise
(SME) and infrastructure-related debt. The resolution, which is intended to benefit SMEs, productive sectors
(i.e., agricultural, cattle raising, forestry, oil, gas, mining, manufacturing, electricity and construction) and
infrastructure, is credit negative for Argentina’s mutual funds.
The new requirement exposes all local fixed-income mutual funds to greater credit and market risks.
Specifically, it requires mutual funds to allot 2.5% of their assets under management (AUM) to productive
sectors, SME-related debt and infrastructure project debt, which have greater credit and market risk than
the predominant mutual fund asset categories. The new requirement expands Argentina’s “inciso k”
regulations, which mandate that mutual funds can meet the AUM requirement by investing in any
combination of the three asset classes.
The resolution mandates that all funds (except local money market or time deposit funds) hold at least
1.5% of AUM in the referenced assets classes within 60 days, and at least 2.5% of AUM within the following
120 days. The resolution requires local money market or time-deposit funds to meet the 2.5% allocation by
30 July 2016. We estimate additional investment into these asset classes of around ARS2.7 billion in the
next 60 days and a total of around ARS4.5 billion after 180 days.
Although this new investment allocation is small, we expect the asset classes to lower the average asset
quality of virtually all mutual funds, increase their expected credit losses and reduce their liquidity. In
addition, we expect the surge in near-term demand for the asset classes to compress their yields, lowering
the yields of the mutual funds.
Regulation directing investment allocations toward these asset types originated at the end of 2008. That
year inciso k investments, together with several mutual funds focused specifically on SMEs and
infrastructure projects, were launched to be sold mainly to institutional investors such as insurance
companies and to the state-owned pension fund Administración Nacional de la Seguridad Social. However,
individual investors and businesses will now be compelled to support the less liquid and less attractive riskreward
characteristics of SME and infrastructure-based financings through their ownership of mutual funds.
Carlos de Nevares
Assistant Vice President - Analyst
+54.11.5129.2618
[email protected]
NEWS & ANALYSIS
Credit implications of current events
31 MOODY’S CREDIT OUTLOOK 28 SEPTEMBER 2015
