The Spanish mutual fund industry may have been around since the 1950s but only in the past five years or so that it has made any impact.
Growth only really got going in 1990 when the government enhanced the tax treatment of fund investment. Until then, the industry, which is dominated by the domestic banks (the top 10 fund promoters are all commercial or savings banks, accounting for around 70% of total assets) had no real incentive to divert deposits into mutual funds.
The fund industry is shaped by the risk-averse, liquidity-seeking nature of the average Spanish investor. Money market funds (Fiamm - often linked to bank accounts) and bond funds (Fim), hold around 95% of total assets and guaranteed funds, a relatively recent innovation, have grown in popularity.
The pensions industry does not play an active role in fund investment at present, but this could soon change. The pension fund market is still relatively young, partly because of hitherto generous state benefits and partly because many employers tend to fund pensions either through book reserves or by deposit administration type contracts (non-qualified plans).
In theory, pension fund investment managers have always had a high degree of freedom in managing assets, but in practice most have been constrained into putting funds into domestic bonds or cash deposits. The introduction of the new pension law at the end of 1995 however, is expected to bring about substantial change, largely in terms of financing but also in the way pension fund assets are invested.
Non-qualified plans are having to revise the way they operate and the result will be a boost to pension fund assets estimated in some quarters at approaching $40bn by 2000. Given the history, however, it must be debatable how much of this money, if any, will find its way into mutual funds.