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The Italian fund management industry has been among the most attractive markets in Europe for quite some time, but this picture is changing slightly. The extraordinary growth that this industry experienced during the last decade has significantly slowed down, according to a study published by London-based FERI Fund Market Information (FFMI). Changes in the Italians’ approach to savings, market volatility and an underfunded supplementary systems, are among the issues that have affected the loss of assets.
According to the report, in 2001 Italy suffered the largest outflows of assets of any European country. The amount of assets that dissapeared from the market during last year amounted to E20.8bn. When this is added to previous losses, the market today amounts to E511bn, a loss of 15% of its asset base since 1999.
Italians are saving less and coupled with the banks controlling the vast majority of savings assets, the resulting impact on the development of the fund management industry is significant. The report highlights how banks have been directly responsible for the transfer of savers’ assets into mutual funds. Under current conditions this might not be considered a good option any more as investors demand more secure investment products. Moving away from mutual funds into guaranteed return investment options is one of the trends benefiting insurance companies.
Although the growth of the mutual fund industry has attracted foreign financial institutions into the Italian market, the study estimates that foreign market share only accounts for 5% of total assets representing E41bn.
In terms of investment products the report says that money market and short-term bond funds were the only two sectors that attracted positive net flows in 2001. Other sectors like bonds saw their assets shrinking, with many of Italy’s largest bond funds loosing more than half their assets since 1999.
Equity funds that enjoyed nice inflows of assets over the past five years, accounted for 35% of the total assets in 2000. Today, outflows of assets from this asset class have reduced that total proportion of equity investments in the market to 27%.
New investment options have just entered the market and some have been better welcomed than others. Funds of funds, for instance, haven’t met the expectations of the most optimistic in the market, but attracted around E7bn since they were launched.
According to the report, alternative investments have also found their place in the market. Hedge funds, that were recently regulated in Italy, attracted E739m during their first year, a figure that could increase to E3bn by the end of this year. However, a regulatory framework that appears to be too strict is limiting sales and proving to be a barrier against achieving early expectations among fund managers.
Recent developments in the pension fund arena have also had an impact on the fund management market. The newly-created third pillar open-ended pension funds aimed towards the self-employed has attracted attention from all the players in the market. Italians are taking it easy, though, and the number of affiliates – and in consequence, assets under management – are expected to be modest. The fact that these funds include a minimum guaranteed return benefits insurance companies.
But the development of pension products remains one of the most important motors for the future of the Italian fund management market. The study estimates a disappointing growth in the market for the next five years, ranging from a low range growth rate of 7% to a higher one of 12%. The higher range scenario would result in E888.1bn by 2006, and depend on the increase interest among Italians on building up their own retirement provision.
In terms of distribution, the Italian market has developed rapidly. The study indicates how distribution fees are increasing, and foreign groups struggling to reach affordable distribution agreements. Distributors choose funds mainly based on performance, efficient administration and payment and settlement issues, with brand name reputation considered less important.
The study, that includes detailed information about market trends, distribution, regulatory frameworks and major players in the industry among other topics, mentions the high level of concentration in a market where the top three ‘supergroups’ control 52% of total fund assets. The top 10 groups account for 80% of the market, a proportion that is likely to increase to 85% by the end of 2002.
To obtain for information about the study contact FERI Fund Market Information on +44 207 9400015.

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