Governance: a work in progress

Related Categories

A recent episode involving major Italian pension funds shows how pension fund governance in Italy is still under the spotlight


  • Italian pension fund regulation mostly match the main requirements of IORP II.
  • Due to a clear governance framework, schemes are mostly insulated from unethical behaviour.
  • Episodes of ‘revolving doors’ in the industry were not uncommon in the past.
  • The new EU directive may improve pension funds’ monitoring capacity still.

Italy has been far less vocal towards the European Union’s IORP II directive compared to other countries in Europe. The directive has been the subject of difficult conversations throughout the Continent, due to its perceived harshness, but the requirements it imposes on pension funds have been part of the Italian regulatory framework for many years. 

The rules in Italy are said to be clear particularly on governance aspects. However, pension schemes have not taken full advantage of that clarity. 

A law regulating pension fund investment was approved only at the end of 2014, before which pension funds had to comply with an outdated framework. Only in 2012 the pension regulator, COVIP, crystallised the rules on pension fund’s organisational structure. 

Meanwhile, Italian pension funds have been cautious with their investment strategies, partly due to weak governance capabilities. 

In parallel, there have been few reports of controversies in the Italian second-pillar pension system. The same can not be said about casse di previdenza, the first-pillar, privatised pension schemes for professionals, some of which have been involved in cases of mismanagement from time to time.

In general, Italy is no stranger to questionable business practices in the financial sector. A recent example emerged in the context of the ongoing banking crisis. Staff from a number of ailing banks sold shares and bonds issued by their organisations to deposit customers in exchange for preferential treatment.

However, a more recent episode involving a number of second-pillar pension funds shows how governance practice in the pension fund sector is still a sensitive subject. 

In August last year Previndai, a €10bn industry-wide fund for white-collar workers, appointed BlackRock as adviser to support it in selecting managers for its portfolio. The firm was selected after an open tender process. 

Naturally, the appointment raised some eyebrows from both the relatively small consultancy sector and the asset management sector. Some criticised the choice, questioning the independence of BlackRock in selecting manages on behalf of a potential customer for the firm’s investment management services. 

In fact, Previndai had specified that the appointed adviser would not participate in the selection of managers for the portfolio. However, the scheme added that the adviser could be called in to run an overlay mandate to complement the activity of the future managers. 

Earlier this year, Previndai completed the manager selection process, appointing three managers to run multi-asset portfolios – AXA Investment Managers, Eurizon Capital and Pimco.

The issue seemed settled, except for the grievances of local and international consulting businesses operating in the country. These firms, according to a source familiar with the matter, lamented the appointment of an asset management to fulfil their role. The matter has been reported to Covip, the pension fund regulator, according to the source.

But the story took another turn. One of the advisers to the board of Previndai, Giuseppe Corvino, a professor of finance at Bocconi University in Milan, was later appointed managing director at BlackRock.

Corvino had a long-standing relationship with Previndai, and has held senior positions at other large Italian second-pillar pension funds. Until recently, he served as chairman of Fondoposte, the €1.72bn pension fund of Poste Italiane, the country’s public-private postal service company. He also served on the board of Cometa, the €10bn pension scheme for the metal and machinery industries. 

BlackRock does not appear to manage any money for Previndai or Fondoposte, while it does manage parts of Cometa’s portfolio, according to the scheme’s latest annual report.

However, Corvino is understood to have resigned from all his roles at pension funds in order to avoid any conflict of interest. Maurizio Agazzi, CEO of Cometa, confirmed that Corvino had resigned “before starting any employment relationship.” 

“His resignation was accepted following due process. I believe everything took place under the highest transparency and mutual fairness,” Agazzi says.

BlackRock confirmed that Corvino began working for the firm’s Italian arm as managing director for advisory and solutions. “Prior to his start at BlackRock, Corvino took a break from his academic commitments and resigned from his institutional roles”, the firm said. 

That should be enough to defuse any criticism. Nevertheless, Italian financial newspaper Il Sole 24 Ore called Corvino’s move to BlackRock a case of ‘revolving doors’. 

Industry sources likened the episode to pension fund governance practices in the early days of the Italian second-pillar industry. At the time, inexperienced boards used to appoint senior employees of asset management companies to provide advice from within the pension fund. This created significant conflicts of interest that were often undeclared or not managed appropriately.

The system has come a long way since then. Today such practices are no longer prevalent, not least because pension scheme boards have become more skilled and schemes have built internal capabilities. 

However, there is a lack of monitoring, according to a source from the advisory sector. The source explained that although governance processes are clear on paper, there is no clarity around who is responsible for monitoring whether those processes are applied. 

“What we need isn’t new rules. We need monitoring on whether and how rules are followed”, said the source.

From that perspective, the adoption of IORP II, which obliges pension funds to run extensive auditing processes, may push Italian pension funds closer to international best practice.

Have your say

You must sign in to make a comment


Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2498

    Asset class: Fixed Income Investment Grade.
    Asset region: Global Developed Markets.
    Size: $50m.
    Closing date: 2019-01-07.

  • DS-2499

    Closing date: 2019-01-02.

Begin Your Search Here