The trust management market participants have achieved amendments to the legislation regarding the activities of endowment funds (endowment funds). In particular, the approach to calculating the expenses of funds and remuneration of management companies has been changed, and the list of instruments available for investment has been expanded. However, several unresolved issues hinder the development of the direction. First of all, this is the lack of tax incentives for legal entities and individuals who donate to these funds.
Legislators supported the proposals of the participants in the trust management market and submitted amendments to the law “On the procedure for the formation and use of endowment capital of non-profit organizations” for consideration by the State Duma. In particular, they propose establishing the size of the fund’s expenses not from income from the management of its assets but the average net asset value (NAV) for the year (up to 0.2%).
The ceiling on remuneration for asset management companies is also expected to be tied to the average NAV, rather than at the end of the year, as previously proposed.
It is also proposed to include additional securities in the portfolio of endowment funds – clearing certificates of participation and shares of exchange-traded mutual funds (BPIF). Currently, the list of instruments is wide, including shares and bonds of Russian and foreign issuers, unit investment funds, and real estate. However, new tools allow for reducing “total costs compared with the formation and maintenance of a separate portfolio of securities,” which is relevant for small funds, the explanatory note says.
There were 221 endowment funds registered as of December 31, 2019, according to the National Endowment Association. Of these, there were 188 active funds. According to Expert RA, as of June 30, 2020, the amount of endowment funds in the management of management companies amounted to 32.6 billion rubles.
The current amendments are the market-expected clarifications to the current law’s key changes that took place this summer. According to the head of NAUFOR, Alexei Timofeev, the correct regulation of remuneration and expenses – on the one hand, restrictions, on the other hand, incentives – is important for the effective management of endowments, which means the growth of their assets. Also, according to Nikolai Shvaikovsky, head of government relations at Alfa-Capital, the expansion of investment objects and a change in the procedure for calculating remuneration “should motivate the management company to invest in potentially more profitable asset classes,” not being limited to traditional endowments for investing assets instruments with fixed income.
But experts also talk about the persistence of bottlenecks that hinder the development of the endowment capital management market.
In particular, Roman Sokolov, Managing Director of Otkritie Management Company, believes that it is necessary to recognize endowment funds and NPO owners of endowment capital as qualified investors.
This will expand their ability to purchase securities of foreign issuers. Now they are viewed as unqualified investors, and only securities traded on Russian stock exchanges can be purchased in their portfolios. As Nikolai Shvaikovsky points out, not only really “foreign” instruments, but also Eurobonds of Russian issuers, “since they are traditionally traded on the OTC market,” remain in the category of prohibited ones. It is also necessary to consider the possibility of combining target capitals for joint investment, says Roman Sokolov. This will increase interest in the management of small funds.
At the same time, the main issue of market development goes beyond the current law. As Nikolai Shvaikovsky notes, the issue that has long been requiring settlement is the lack of tax incentives for legal entities and individuals who donate to these funds.