Any adviser, large or small, would have seen an opportunity when the Italian pension market opened up less than 20 years ago, with the establishment of many new medium and large-sized pension schemes.
However, the market has failed to develop at a significant pace and may no longer seem interesting, particularly for large consultants.
One small outfit, Mangusta Risk, competes with titans such as Towers Watson, Mercer and Aon Hewitt.
In the early days of the new era of institutional investment in Italy the team chose the name Mangusta, Italian for ‘mongoose’, the small but agile mammal capable of killing venomous snakes.
Now it advises boards of many of the largest pension schemes and ENPAM, the casse di previdenza for doctors, on their European search for passive managers to manage a portfolio of €2.5bn.
However, Davide Cipparrone, Rome-based head of portfolio design, is less concerned with praising the success of its company than with explaining in detail what challenges Italian institutional investors currently face.
Cipparrone says: “There are some developments in terms of regulation which could affect the market, such as the new 703 decree on asset limits. But every year we look forward to changes that eventually do not take place.
“The most important challenge for pension schemes today is the negative trend on the job market: contributions are and new memberships are falling fast. This is happening precisely when Italian pension schemes were ready to come of age.”
Still, there is plenty to discuss with Cipparrone in terms of strategy. Mangusta Risk is busy helping Italian schemes complete the long and gruelling transition to mostly passive portfolios.
What approach should a pension fund adopt when building a passive portfolio?
“First, fostering competition between managers by doing large public searches,” says Cipparone.
“Second, portfolios need to be built item by item, first by the investor, and then with the manager: passive funds built by third parties should be avoided.
“We build the ideal portfolio with the client looking at the many variables, and then make a final decision with all the parties involved: investor, manager, custodian bank, risk manager.
“Third, the investor always needs to regularly check what the manager is doing, even though it is a passive mandate.
“Last but not least, when appointing passive managers it is key that the investor and the manager agree on what should be done in case of market shocks.”