Investors look for designer products
The Italian asset management market is a large one. According to estimates from Milan-based firm Assogestioni, the amount invested in UCITS in the country at the end of last year was above e1trn. At the time, just under e400bn was invested in life insurance funds and almost e800bn in portfolio management.
Italy has experienced the fastest growth in asset management in Europe during the past decade, especially after 1997 until last year. The market has now slowed down.
The asset allocation of funds in Italy was split into 30% domestic bonds, 10% domestic equity, 22% in foreign bonds, 30% in foreign equity and around 8% in other assets.
“Italians are fashion-conscious savers and they demand ‘designer’ equity products,” said Fabio Galli director and head of economics affairs for Assogestioni, during a conference on Fund Management Opportunities in Italy, held in Rome in April. “They want asset allocation products, funds of funds and risk adjusted vehicles.”
Regarding this, new products have already entered the Italian market such as hedge funds, private equity funds, funds of funds and reserved funds for institutional investors.
“Both hedge funds and IIF have special management rules which derogate from the Bank of Italy regulation,” says Massimiliano Danusso partner at law firm Brosio, Casati – Allen & Overy in Rome. “In general, hedge funds have a broader manager discretion than IIF.” Danusso points out that it’s not yet possible to register foreign investment hedge funds or funds of funds, although there might be an opening towards these products in the near future.
Although the interest in hedge fund investing by Italian pension funds is still very slow, there is an ongoing discussion about the opportunities that these products could bring into institutional portfolios. More and more asset managers are developing these investment vehicles. The new Italian hedge funds have basically no investment restrictions and cannot have more than 100 unit holders. However, it’s necessary to set up a SGR to manage exclusively this type of funds and the initial subscriptions are not less than e1m.
“Italian investors have a strong appetite for performance and strong aversion to risk,” Galli said.” Low bond yield has triggered asset re-allocation and performance awareness and there are discussions about whether could require an overhaul of investment services.”
He also noted: “Benchmarking and total expense ratio are increasing investors’ awareness.”
He explained than in order to meet this demand, suppliers are changing. “The ownership structure of asset managers is changing.” According to his presentation more than 95% of asset managers companies are owned by banks, and around 4% belong to insurance companies. In terms of distribution channels around 10% of funds in Italy are distributed via financial advisers, and around 60% are distributed by banks. Around 30% of total funds in the Italian market are directly investments.
In terms of taxation a new law which came into forced in January has brought fiscal advantages for individual investors, affecting also those joining open-end pension funds. This coefficient of adjustment – equalizzatore – is applicable to both income from capital and miscellaneous income coming from investments in foreign UCITS which are in compliance with the European directives, and that have been collective by Italian individuals other than those representing a corporation.
This initiative was supposed to be considered an incentive for the open end schemes which still haven’t managed to attract large numbers of affiliates, but so far the participation rates in these pension plans has not increased significantly.
Mutual investment funds and SICAVS have not experienced a significant growth during 2000. According to Assogestioni the assets under management by these funds was around e539bn and the figure for the end of 2000 is just a few extra million at e580bn.
However, an following the same data, the asset under management through Luxembourg or Dublin-based funds promoted by Italian managers after 1993, almost double the number of assets under management from around e32bn in 1999 to e60bn in 2000, following the trend present in other European markets.
Although the largest newly created pension funds are mainly invested directly in bonds and equities, investment funds will prove to be a useful vehicle for those managers in charge of managing the portfolios of some of the newly created small-size close end funds, allowing them to achieve diversification regardless the size of the portfolio. However some investment restrictions in terms of investing directly in funds still apply for this type of schemes.
In the case of open-ended schemes, managers can invest freely in mutual funds as long as the management fees do not duplicate.