Iceland’s investors had been prevented from allocating additional funds to foreign investments since 2008, due to capital controls installed in the wake of the collapse of the island’s banking system. Consequently, they had been forced to keep the bulk of their money in Icelandic assets. According to Expert Investor research, only about a quarter of their assets had been invested abroad until capital controls were lifted two months ago.
The announcement by Iceland’s finance minister Benedikt Johanesson in mid-March that capital controls would be lifted sparked immediate action by the island’s fund buyers. A poll at the Expert Investor Iceland forum in Reykjavik earlier this week showed almost 90% of the fund selector audience had increased their exposure to foreign investments in the past two months. Some 13% had even done that by more than 10%.
The foreign exposure of Icelandic investors tends to be traditionally concentrated in equities, and it’s that asset class that’s most in demand now too (see chart below).
The clients of Reykjavik-based fund management company Landsbref took maximum advantage of the lifting of capital controls by increasing exposure to foreign equities by 20%, Egill Brynjolfsson, who manages a global equity fund-of-funds at the bank, told Expert Investor.
“We established this fund last fall, anticipating the lifting of capital controls. It has been only a few weeks since this happened and our sales team is beginning to market these products with local clients,” he explains.
Find out on page 2 why many Icelandic investors remain hesitant to invest in foreign assets