Italy: The guard changes at Cometa
As Fabio Ortolani steps down from the Cometa pension scheme ahead of August’s management elections, Carlo Svaluto Moreolo offers an appraisal of his term and the issues that the new team will have to focus upon
Being the largest private pension scheme in a confusing and underdeveloped market such as Italy’s may seem like a record that is not worth holding. However, Cometa, Italy’s largest scheme with €5.7bn in assets, holds this title with pride.
After navigating the fall-out from the 2008 financial crisis, Cometa regained the momentum it had lost. But now the scheme for workers in the engineering industry has come to a turning point.
In August this year, following a vote held last month, a new board of directors will take office, with two main goals. First, extending its membership from 460,000 to 550,000. This represents the total number of engineering workers in Italy. Second, realising the annual forecast growth of €900m in assets.
To achieve these goals, the new board will have retain its advertising strategy and to maintain a fruitful relationship with the fund’s eleven asset managers, nine of which were hired last summer in a major mandate overhaul.
The scheme was founded in 1999 by a group of institutions representing employers and trade unions: Federmeccanica e Assistal, part of Confindustria, Italy’s employers’ association, and trade unions FIM, FIOM, UILM, FISMIC and CGIL.
According to the fund’s statute, every three years the structure of the board changes. A vote elects the new members of board with the representatives of the employers and the trade unions switching seats. This time, the trade union will put their representative on the chairman’s seat, and after three years at the helm, the employers’ representative will be vice chairman.
During the election, 460,000 members and 2000 firms will elect the 90 members of the council, half of which come from the employers’ side, and half from the workers’ side.
The votes are counted during July, and in August Cometa’s president Fabio Ortolani, who has guided the scheme for the past three years, will leave his post. His contribution to Cometa’s growth and resilience during the financial crisis is clear, and he leaves a mark in the scheme’s recent history.
Under Ortolani’s stewardship, Cometa achieved a €2bn increase in assets to €5.7bn, and by 2008 it had increased membership to 474,000. Due to the crisis, Cometa lost around 23,000 members, however Ortolani says the exodus was sparked by factories closing and unemployed workers needing a release of funds.
Ortolani says that Cometa still managed to retain members who had not been made redundant in recent years and keep membership above the critical 450,000 mark.
The current forecasts for the scheme, while not dazzling, are positive. There are 550,000 potential members in the engineering sector, which means Cometa still has to convince another 100,000 workers to join. In terms of AUM, the potential increase is of around €900m per year. This gives the appointed asset managers some room for manoeuvre, should the Italian government approve changes to law 703 that restricts the types of investment pension funds can make.
Ortolani says this will be one of the challenges for the new board. He believes Cometa, being the largest private pension fund in Italy (third only to the government funds, INPS and INPDAP), should lead the debate on the investment restrictions.
Before his departure, Ortolani was busy reviewing the performance of the asset managers that Cometa hired last summer, in last year’s largest manager search in Europe.
Ortolani said that the new five-year mandates could save Cometa €800,000 annually. After the manager search, which attracted some of the biggest names in the industry, Cometa’s portfolio, consisting of sub-funds Monetario Plus, Reddito and Crescita, was split between 11 managers.
Allianz Global Investors was appointed to manage a €670m active balanced global portfolio. Amundi received the active mandate for the the fund’s €615m portfolio of global fixed income. Eurizon Capital SGR and Generali were appointed to manage another €570m each of fixed income. State Street Global Advisors and Halbis (part of HSBC Global Asset Management) were selected for passive mandates, getting €525m of the global balanced portfolio each. State Street Global Advisors along with UBS were appointed to manage €445m each of balanced passive fixed income investments. Pioneer was selected for the passive management of €170m in global balanced investments and Russell was asked to manage Cometa’s €1.2bn currency risk exposure, while UGF and Cattolica Assicurazioni had been confirmed earlier in 2010 for Cometa’s guaranteed return sub-fund Sicurezza.
Twelve months from the appointments, Ortolani says: “We are reviewing the activity of the managers, comparing what had been promised to what has actually been done, to point out any problems or any excellent performance. In doing so, we are using the same methodology we used to select the managers. This analysis will be handed to the new board of directors as a reference for the managers, because after a year you can get an idea whether a manager is working well.
“Evaluating the mangers after a year is something new. We have given a signal to the managers. After a year, you can make some decisions about them, or update your tactical asset allocation. We monitor every aspect: for instance, if a manager has been given a passive mandate, we want them to replicate the benchmark constantly, and we do not want them to do any active management.”
While reviewing the activity of asset managers after a year may seem premature, Ortolani says it is timely enough. “For instance, after a year, you can check whether the balance between active and passive mandates works, and the new board will have an analysis to refer to, and make decisions accordingly in the future.”
“At the moment, we are confirming the current structure. We have strategies in place that many funds cannot afford. We do mono-thematic meetings about country risk for instance, with all the managers participating in the discussion. We do meetings about asset concentration, devaluation, inflation. Because we have chosen a particular asset allocation, we want all managers to share a common vision. This is another new element. At the beginning, the managers were perplexed. We made them ‘confess’ what their vision was, and they had to conform themselves.”
Recently, Ortolani has spearheaded a large advertising campaign to win the hearts of the remaining 100,000 workers that have shunned Cometa. The campaign, which coincided with the elections, was run on major media channels, including social network website Facebook.
Ortolani says: “We need to reach young people, that is why we ran the campaign on ‘young’ media channels such as Facebook. We also ran adverts on two private radio channels: one has a young audience, the other is a news channel primarily covering financial news.”
The campaign also targetted specific locations in northern and southern Italy where engineering companies have a historic foothold. “We also advertised in local newspapers, and other media that are close to the factories. The elections were also promoted to raise the workers’ awareness of them and of Cometa.”
Ortolani’s departure is a significant step for the scheme. The new board will look to continue the positive membership growth record, only interrupted by the crisis, and to continue growing the assets. They will need to maintain the positive relationship with managers and the active management style that Ortolani kept during his chairmanship.
As far as Ortolani’s future is concerned, he has been appointed by AGCI (Associazione Generale Cooperative Italiane), the Italian co-operatives’ association, to oversee its relationship with the three co-operative employees pension schemes, Previcooper, Filcoop and Cooperlavoro. He will lead the debate on the consolidation of these three funds, which are among the candidates for merging, in a consolidation trend that will lower the number of pension schemes in Italy, creating larger, more powerful funds.There are also unconfirmed rumours, that he has been asked to head Fonchim, Italy’s second second-pillar pension scheme for chemical industry workers.