Historic overview of the fund industry in Bulgaria
The fund industry in Bulgaria is relatively young – its nascent steps began in 1995 along with the mass privatization program of the government. Within two and a half years the assets of one-fourth of country's state-owned enterprises were privatized against vouchers distributed to all citizens. An important result of this programme was that investment funds became important agents in the private sector of the economy. In 1997 the newly established privatisation funds were given the opportunity to transform into holdings or investment funds. This is how the first Bulgarian investment fund came into being. Later on, in 2005, the first mutual funds were established.
Throughout the years, along with the establishment of a free market economy and with the development of the local capital market, an ecosystem of asset management companies and investment funds emerged and grew stronger.
Current market developments
In second quarter 2024 there are 1585 investment funds (IF) that operate in Bulgaria, out of which 90% or 1427 are foreign (non-resident) and 10% or 158 are local (resident) ones. As of end June 2024 the assets managed by both resident and non-resident IFs totaled BGN 10.6 billion or 5.4 billion euro. Thus, the total amount of assets of resident and non-resident investment funds corresponded to 5.4% of Bulgaria’s GDP (Gross domestic product) as of first-half-year 2024. The assets managed by resident and non-resident IFs operating increased by BGN 1.7 billion or 893 million euro (19.7%) year-on-year and increased by BGN 561 million or 287 million euro (5.6%) from March 2024 till June 2024.
This resulted from the good performance of capital markets in 2023 – the main index of the Bulgarian Stock Exchange alone recorded a rise of around 27% in 2023, while government bond yields increased in both Europe and the USA. Another reason for this were the low deposit rates, which increased the attractiveness of mutual funds and other alternative instruments.
In parallel, annual data for 2023 shows that country’s licensed 31 asset management companies (AMC) managed assets worth BGN 3.9 billion or almost 2 billion euro, which equaled 2.1% of country’s GDP in 2023. The assets of AM companies increased in 2023 by 22.6% on an annual basis, which came after an almost zero growth in 2022 on 2021.
Market leaders and players
Non-resident investment funds’ liabilities to residents totaled BGN 7.2 billion or 5.4 billion euro as of end of June 2024, which was an increase of almost 19% year-on-year and about 6% compared to the first quarter of the year. The institutional sector breakdown of investors in non-resident IFs revealed the prevalence of insurance companies and pension funds (66.6%), and households and non-profit institutions serving households (16.8%) as of the end of June 2024. At the end of June 2023 the shares of both sectors were 64.2% and 17.6% respectively.
The assets of resident IFs amounted to BGN 3.4 billion or 1.7 billion euro as of end of June 2024 increasing by almost 22% year-on-year and by 5.2% on quarterly basis. The breakdown reveals that equity funds’ assets increased by 30% at end of June 2024 compared to the same period a year ago, whereas mixed funds and other funds’ assets grew by 22.4% and bond funds’ assets increased by 4.6%. As the end of second quarter 2024, equity funds held 61.1% in the assets of resident investment funds, bond funds held 24.6% and mixed funds, real estate and other funds – 14.3%.
Regarding the asset management domain, as of the end of 2023, nearly 80% of assets are held by the ten largest asset management companies in the sector.
Two companies reported a market share of more than 10%:
KBC Asset Management N.V. – Branch, Bulgaria (20.1% or 400 million euro)
Compass Invest (10.2% or 203 million euro)
KBC Asset Management N.V. – Branch, Bulgaria was by far the market leader with annual increase of the assets of almost 40% in 2023 on yearly basis.
Other significant asset management players with assets exceeding 100 million euro were:
Concord Asset Management,
Expat Asset Management, DV Asset Management (100% owned by Vienna Insurance Group AG – Austria),
DSK Asset Management (owner of which are DSK Bank with 25% of the capital and OTP Fund Management with 75%),
Karoll Capital Management.
Conclusion and outlook
The growing albeit slowly financial literacy and investment culture in Bulgaria, as well as the alternatives offered by companies in the fund industry are expected to continuously have a positive impact on the sector in the coming years. In a short-term perspective this positive development is to be significantly impacted by all-time low deposit rates and the undeniable potential for diversification among domestic clients. Other than that, since fin-tech solutions are not yet fully exploited on the local market, disruptive solutions continue to bear additional potential for growth of the local fund market in the years to come.
Source: Economic Policy Institute Bulgaria, as of October 2024