Chile pulls $4bn out of Ireland over 'poor credit rating'
Published 14/09/2011 | 05:00
Ireland's funds industry looks set to be hit by a withdrawal of $4bn (€2.9bn) by emerging country Chile, which cites Ireland's poor credit rating as the main reason.
Chilean authorities signalled last October they were putting Ireland on a watchlist, but with Ireland moving down to junk bond status during the summer months, the Chileans are now expected to order the withdrawal -- with funds most likely going to Luxembourg.
The decision is one for Chile's Risk Classification Commission which has strict rules governing the countries where investment funds are placed. The decision does not in any way affect Irish banks. The funds in question are Ucits funds, which are overseen by the regulator here.
The funds industry here has been trying to convince the Chilean authorities to change their stance, pointing out that Ireland's sovereign rating is unconnected to the private funds industry. However, like pension funds and some asset managers, the mandate of the Chilean industry is strict in relation to countries with non-investment grade ratings.
But when contacted yesterday, the official body which represents Irish funds -- the Irish Funds Industry Association -- said it believed any decision by Chile would not hurt the industry here or create any spillover effects.
Chief executive Gary Palmer said investors would be able to work with the limits imposed by the Chilean authorities. "There is still room for further investment, possibly subject to a rebalancing of the portfolio of investments that fall under the limits,'' he said.
Irish funds recorded the highest level of net inflows in Europe in the first half of the year, according to the latest statistics, Mr Palmer added.
Ireland saw net inflows of €39bn in the first six months of 2011 -- some €7bn more than the next closest domicile, he said.
"The most impressive gains for Ireland were seen in quarter two of the year where it was reported that the domicile experienced net inflows of €26bn -- representing growth of 1.5pc during the period."