* Tax hikes part of financial reforms approved by parliament
* Taxes on mutual fund assets will jump by as much as
seven-fold
* One fund freezes investment plan, another reviews share
issue
By George Georgiopoulos
ATHENS, June 17 (Reuters) - Greece's latest austerity
measures are choking off one of its few sources of local private
investment, the funds management industry, thanks to massive tax
hikes buried in 7,500 pages of financial reforms approved by the
parliament last month.
One listed Greek fund has frozen a 300 million euro ($340
million) investment plan, and another has put a share issue of
at least 250 million euros under review, since the hikes were
passed -- a footnote in a reform package that appeased the
government's European creditors and avoided another cash crunch.
The country's 7 billion euro ($8 billion) funds industry,
though small, is a potentially important vehicle for much-needed
investment in the shattered economy, helping firms to raise
money and buying up property from banks burdened with bad loans.
The new tax rates, applied to funds under management,
underline how Athens is relying on a narrow, overstressed tax
base to stay afloat, depressing economic activity, while the
country's large black economy remains out of reach.
The finance ministry, which is also overseeing a hike in
value-added tax as well as separate taxes on Internet usage and
fuel, did not respond to requests for comment.
Taxes on mutual fund assets will jump by as much as
seven-fold, with new tax rates differing by type of fund.
Real estate funds, a fast-growing source of investment in
recent years, fare the worst because Athens has also doubled a
separate tax on landlords, in turn hurting property values.
Such a tax, which comes on top of normal corporate tax, is
unusual for the asset management industry.
No major European fund management centre imposes such a
levy, with taxes usually imposed on dividends, interest income
or capital gains rather than a blanket rate on funds under
management.
"We were planning investments of more than 300 million
euros, which would have beneficial multiplier effects, but now
the plan has been frozen," said George Chrysikos, chief
executive of listed real estate investment fund Grivalia
Properties GRIr.AT .
"The taxation is hard to bear and will likely force property
funds to drastic moves, including freezing plans to raise
capital, returning capital to their shareholders and even
switching residence and delisting from the Athens stock
exchange."
Another property investment fund, NBG Pangaea PANGr.AT , is
likely to ditch plans to raise between 250 million and 400
million euros in a share issue, said a senior executive at the
fund who spoke on condition of anonymity.
It planned to invest the proceeds in commercial property.
IMPRISONED BY CAPITAL CONTROLS
Greek mutual-fund investors are mainly middle-class
investors, each with around 20,000 to 30,000 euros invested,
while the wealthy use private banking, industry insiders say.
"I would be looking to switch to a foreign mutual fund
management company to avoid it (the tax hikes), but even if you
pull the money out you can't send it abroad under capital
controls," said Nikos Villiotis, 47, a civil engineer who has
about 60,000 euros invested in Greek equity and bond funds.
Greece's capital controls, imposed a year ago to prevent the
collapse of its financial system, have dissuaded investors from
stampeding out of local mutual funds, but fund managers say
redemptions are still likely once the controls are lifted.
"Today, due to capital controls, they cannot do it. But this
is short sighted because at some point capital controls will be
lifted," said Theodore Krintas, vice-president of Greece's
institutional investors association.
Greece's mutual funds industry has shrunk dramatically since
the financial crisis erupted in 2010 when investors took
advantage of their then freedom to move money abroad, but the
industry has remained a precious source of investment.
Property funds alone had planned to invest 1.5 billion euros
over the next three years, including buying real estate from the
nation's cash-strapped government.
"We shouldn't be shooting at the home fund management
industry, money needs to stay at home to fund investments and
help the economy recover," said George Koufopoulos, head of 3K
Investment Partners.
Given investors are effectively locked into their funds due
to capital controls, the shares of the largest listed property
fund managers have actually outperformed the wider market.
Since late May shares in Grivalia Properties, part-owned by
Canada's Fairfax Financial Holdings FFH.TO , have fallen about
6 percent while Pangaea PANGr.AT has lost 5 percent, though
both stocks are very thinly traded. The Athens bourse's broader
market index .ATG has fallen 10 percent.
Greece's securities regulator agreed that the new tax burden
weighed heavily on funds but said it could be eased later on.
"We also think the tax impact is heavy on growth vehicles
such as mutual funds and property investment trusts but official
lenders insisted," Charalambos Gotsis, chairman of the Capital
Markets Commission, told Reuters.
"We had expressed our disagreement, suggesting that the tax
should be on returns and not on the capital the funds manage."
($1 = 0.8829 euros)