The Bank of Russia has released an analysis and summary of the law enforcement practices in the retail unit investment funds (UIFs) market. This includes international experiences and initiatives from market participants, with proposals for potential development scenarios in this sector.
One proposed area of development is to expand investment opportunities for retail UIFs. The suggestion includes increasing the range of unlisted securities that retail UIFs may invest in, albeit within certain limits. Additionally, there is a proposal to enlarge the list of eligible assets to include digital financial assets (DFAs). To facilitate this, a legal framework and procedure for separate accounting and storing of DFAs are necessary. However, investments in DFAs by retail UIFs will only be permitted after a specified period.
Market participants have also suggested promoting conditions for creating UIFs with increased financial leverage in Russia. These involve borrowings or derivatives used by a UIF to generate returns. Currently, non-qualified investor UIFs can have financial leverage not exceeding 20% of their net asset value, though this threshold can rise to 40% due to market factors. According to the Bank of Russia, higher leverage involves elevated risks requiring additional measures to protect investors.
The idea of establishing a fund of funds is another area requiring comprehensive examination. Presently, Russian management companies cannot purchase investment units from one UIF under their management into another's portfolio under their management. However, master-feeder fund structures exist internationally; these are central funds pooling assets from other feeder funds. The regulator proposes discussing the possible use of such structures in Russia and addressing issues they could resolve in the collective investment market.
The consultation paper also considers proposals for accelerating transactions with investment units. Currently, issuing, redeeming, and exchanging open-end UIFs' investment units typically take one to four business days after all necessary documents are submitted and payments processed. There is a proposal to consider reducing this period so that these procedures can be completed on the same day.
For more details about potential scenarios for retail UIF development, refer to the consultation paper. The Bank of Russia invites feedback on this paper until September 1st, 2025.