The Confederation of Spanish Savings Banks is paving the way for Spanish investors looking to go abroad, reports Rachel Oliver

Up until recently the Spanish insitutional investor has had little reason to invest abroad. But with rates currently hovering around the 5% mark and looking set to fall with the onset of the EMU, Spanish bonds are losing some of their appeal. And, despite their aversion to equities, even banks looking for better returns on their investors' assets are being forced to look elsewhere. The Spanish Confederation of Savings Banks (Confederacion Española de Cajas de Ahorros - CECA) has signalled the start of this departure from local investment, with the set up of a Luxembourg-domiciled umbrella fund, which invests internationally.

The Cajas de Ahorros is a Sicav open-ended fund and currently holds assets which CECA estimates within the next couple of months will hit Pta44bn($300m). The fund was structured by Banque Priveé Edmond de Rothschild in Luxembourg, following an approach by the confederation. The fund currently is split into eight sub-funds, one for each of the members, which are five of the savings banks, two Spanish pension funds and one insurance company. The pension funds are affiliated companies of the savings banks as no-one outside the confederation or unaffiliated with it is permitted to invest.

The fund operates an intra-pooling structure, a factor which Omar Mi-randa, manager international finance, said acted in Banque Privée's favour when carrying out their search for a suitable fund. We knew fairly well who were providing good services" he says. "It was only a question of getting to know more details about the latest innovations and the reason why we chose Rothschild was because they offered not only an umbrella SICAV with sub-funds which could be used by individual savings banks, but also because they were one of the developers of intra-fund pooling structures.

"Every savings bank could have their own sub funds with one or more portfolios on an individual or pooled basis and they were able to forget about administration constraints," he adds. "They were able to focus on how to adjust the investments not only within each portfolio but also from one to the other without actually selling shares of the sub-fund, or without having to move to another sub-fund. You have just one and as it were, you have an unlimited number of portfolios which they could decrease or increase depending on market conditions."

Currently, the fund only really invests in fixed income, mostly government bonds. "Our risk is low, our liquidity is very high and the returns can be good," explains Miranda. However, CECA has recently opened up a European equity portfolio, with more to come in the future.

"The question of investment diversification has been moving rather slowly in the last few years," explains Miranda. "The investment mentality in Spain has been rather averse to the equity markets whether local or international. In that sense, most of the portfolio has been fixed income. That mentality is changing away from bonds - there are lower yields whether in Spain or outside Spain in the bond markets. There are more opportunities, more value in the equity markets."

CECA is just one of many institutions in Spain who are realising that it is no longer paying off to stay at home. But the problem lies in the lack of Spanish expertise. As Miranda ex-plains, it is clear that had CECA in-vested internationally over the past five or six years they would have seen substantially better returns, but finding the local know-how to incorporate international markets in their portfolio is another subject altogether.

"We realised that within Spain there was not enough expertise to be able to evaluate the non-Spanish markets," Miranda says, adding that the only solution was either to plough re-sources into nurturing Spanish know-ledge in multiple markets, or simply to pack up and get out. The most logical solution was the latter. "We decided to equip ourselves with fund managers based in London and other countries within Europe," he says.

The Sicav currently has two fund managers - Hill Samuel AM and Pari-bas AM, but Miranda says they are always on the look out for additional managers who can offer something "unique".

"We are always seeking the right expertise for the market.""