SUPERVISION OF UNDERTAKINGS FOR COLLECTIVE INVESTMENT 1. Developments in the UCI sector in 2009 2. Developments of UCI entities in 2009 3. The Madoff Case 4. Performance analysis of the major Luxembourg UCI categories in 2009 5. Management companies set up­ under Chapter 13 of the law of 20 December 2002 6. Developments in the regulatory framework 7. Prudential supervisory practice 03 SUPERVISION OF UNDERTAKINGS FOR COLLECTIVE INVESTMENT 1. Developments in the UCi seCtor in 2009 1.1. Major events in 2009 In 2009, the Luxembourg sector of undertakings for collective investment (UCIs) recorded a growth of 18.04% in the net assets under management and of 2.73% in the number of UCIs. As regards the development in net assets of Luxembourg UCIs, the volatility in the financial markets resulting from the credit crunch continued to be a worry for the players on the global financial markets during the first quarter of 2009, so that the UCI sector did not progress during that quarter. Thanks to the ongoing expansive and joint monetary and fiscal policies by most of the G20 Member States, market liquidity improved and the price of securities stabilised on monetary and financial markets during the second quarter of 2009. The MSCI World index thus increased by 25.94% during 2009 and the European bond index JPMorgan Credit + Pfandbriefe + EMU Local Index Level Euro increased by 6.92%. The resurgence of activity on global financial markets coupled with a tendency of decreasing risk aversion led investors to increase their demand in higher risk UCIs. Net capital investments thus reached EUR 35.226 billion in 2009 for equity UCIs, EUR 48.478 billion for bond UCIs and EUR 20.158 billion for diversified UCIs. That said, when taking into account decreasing interest rates on money markets and a reduced preference by investors for liquidity, money market UCIs suffered net redemptions of EUR 15.354 billion. Following the positive development in financial markets and the increase in net capital investments in UCIs, the volume of net assets of Luxembourg UCIs increased from EUR 1,559.7 billion to EUR 1,841.0 billion over the course of the year. This 18.04% increase in relative terms and EUR 281.3 billion in absolute terms is due to 30% to the net capital investment and to 70% to the positive impact of financial markets. The number of UCIs and specialised investment funds (SIFs) totalled 3,463 as at 31 December 2009 as against 3,371 at the end of 2008. The number of SIFs increased most with 134 new entities whereas UCITS only registered a weak increase of 17 new entities. The number of UCIs subject to Part II of the law of 20 December 2002 on undertakings for collective investment decreased by 59 entities. 53.22% of the 3,463 UCIs registered on the official list as at 31 December 2009 were UCITS governed by Part I of the law of 20 December 2002. As a result of the credit crisis, the year 2009 was characterised by a tendency towards consolidation which resulted in a reduction of the number of UCI sub-funds to 12,232 (-93 sub-funds). While the number of equity UCIs, fixed income UCIs and fund of funds slightly decreased during 2009, diversified UCIs, real estate UCIs and guarantee-type UCIs increased in terms of entities. On the regulatory side, the new UCITS IV Directive was adopted by the European Parliament and the Council of the EU on 22 June 2009. The directive introduced five new measures, in particular the option, for management companies, to manage UCITS located in another Member State (passport for management companies), the possibility for UCITS to adopt Master-Feeder type structures, the introduction of harmonised European regulation permitting mergers between UCITS on a cross-border basis, the replacement of the current simplified prospectus with a harmonised document providing investors with essential information on the investment objective, performance and costs (Key Information Document or KID) as well as the simplification of the registration of UCITS in another Member State. Nine new management companies were set up in Luxembourg under Chapter 13 of the law of 20 December 2002 whereas six management companies ceased their activities during the year gone by. 76 1.2. Developments in the UCI sector 1.2.1. Development in the number of UCIs The number of UCIs registered on the official list is of 3,463 UCIs as at 31 December 2009 against 3,371 UCIs at the end of the previous year, representing an increase of 92 entities (+2,7%). Over the year, 408 new UCIs 03 were registered and 316 entities were withdrawn from the official list. Over the last ten years, the number of UCIs has grown by 1,833 entities to reach 3,463 entities in 2009, which corresponds to an average growth of 11.2% per year. The increase for 2009 can therefore be described as weak in comparison to previous years. 2009 was characterised by a high number of withdrawals of UCIs. The explanation lies in the fact that several fund promoters restructured their product offering following the 2008 financial crisis. Development in the number of UCIs Number Registrations on Withdrawals Net variation in % of UCIs the official list from the list 1999 1,630 265 156 109 7.2% 2000 1,785 278 123 155 9.5% 2001 1,908 299 176 123 6.9% 2002 1,941 222 189 33 1.7% 2003 1,870 175 246 -71 -3.7% 2004 1,968 202 104 98 5.2% 2005 2,060 266 174 92 4.7% 2006 2,238 345 167 178 8.6% 2007 2,868 824 194 630 28.2% 2008 3,371 712 209 503 17.5% 2009 3,463 408 316 92 2.7% 1.2.2. Development in the net assets of UCIs The influx of new capital and the performance on the major financial stock markets resulted in a EUR 281.3 billion increase over one year in Luxembourg UCIs’ global assets to reach EUR 1,841.0 billion as at 31 December 2009 (+18.0%). This growth originates to 30% from net issues and to 70% from the increase in stock markets. Net capital investments in Luxembourg UCIs amounted to EUR 84.4 billion in 2009, which proves that investors regained confidence in the markets. Development in the net assets of UCIs (in billion Net assets Net issues Net asset in % Average net EUR) variation assets per UCI 1999 734.5 140.1 247.7 50.9% 0.451 2000 874.6 168.1 140.1 19.1% 0.490 2001 928.4 121.7 53.8 6.2% 0.487 2002 844.5 57.3 -83.9 -9.0% 0.435 2003 953.3 82.6 108.8 12.9% 0.510 2004 1,106.2 113.7 152.9 16.0% 0.562 2005 1,525.2 236.3 419.0 37.9% 0.740 2006 1,844.8 241.3 319.6 21.0% 0.824 2007 2,059.4 188.5 214.6 11.6% 0.718 2008 1,559.7 -77.2 -499.7 -24.3% 0.463 2009 1,841.0 84.4 281.3 18.0% 0.532 77 SUPERVISION OF UNDERTAKINGS FOR COLLECTIVE INVESTMENT Development in the number and net assets of UCIs Net assets Number of UCIs (in bn EUR) 3,500 2,500 3,000 2,000 2,500 2,000 1,500 1,500 1,000 1,000 500 0 500 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 UCIs 1,630 1,785 1,908 1,9411,870 1,968 2,060 2,238 2,868 3,371 3,463 Net assets 734.5 874.6 928.4 844.5 953.3 1,106.2 1,525.2 1,844.8 2,059.4 1,559.7 1,841.0 1.2.3. Development of UCI entities1 As at 31 December 2009, 2,108 out of 3,463 UCIs had adopted a multiple sub-fund structure. Given that the number of sub-funds regressed from 10,973 to 10,877 (-0.9%) and that the number of traditionally structured UCIs only increased slightly from 1,352 to 1,355, the total number of economic entities passed from the record level achieved last year of 12,325 to 12,232 as at 31 December 2009 which represents a decrease of 0.8%. Development of UCI entities Total of which as % of of which as % of Number of Average Total Variation number traditionally total umbrella total sub-funds number number in % of UCIs structured funds of sub- of UCIs funds per entities umbrella fund 1999 1,630 717 44.0% 913 56.0% 5,119 5.61 5,836 12.7% 2000 1,785 757 42.4% 1,028 57.6% 6,238 6.07 6,995 19.9% 2001 1,908 779 40.8% 1,129 59.2% 6,740 5.97 7,519 7.5% 2002 1,941 751 38.7% 1,190 61.3% 7,055 5.93 7,806 3.8% 2003 1,870 690 36.9% 1,180 63.1% 6,819 5.78 7,509 -3.8% 2004 1,968 742 37.7% 1,226 62.3% 7,134 5.82 7,876 4.9% 2005 2,060 762 37.0% 1,298 63.0% 7,735 5.96 8,497 7.9% 2006 2,238 851 38.0% 1,387 62.0% 8,622 6.22 9,473 11.5% 2007 2,868 1,180 41.1% 1,688 58.9% 9,935 5.89 11,115 17.3% 2008 3,371 1,352 40.1% 2,019 59.9% 10,973 5.43 12,325 10.9% 2009 3,463 1,355 39.1% 2,108 60.9% 10,877 5.16 12,232 -0.8% Similar to the development in the number of UCIs, the total number of entities decreased in 2009.