Mixed reactions to new regulations

The Italian wealth management industry is embracing a new set of opportunities thanks to the latest innovation for the investment world to come out of Brussels - the Ucits III directive.

For Italy, as for the rest of the EU, the new law means a wider range of investment products, most importantly funds using derivatives, can now be sold to individual investors. This seems to be good news for Italy’s investors and banks, as well as the international product providers that serve them. But these opportunities do come with risks and some argue Ucits III does not address all the issues it should.

Francesco Gentiloni Silveri, a high profile financial consultant based in Rome and Milan, said at PWM’s Milan conference: “The effects of Ucits III in Italy will be really strong. The investment possibilities will increase and consequently the risks will increase too. Therefore Italian and European asset managers will have to be very careful to keep the news risks under control, especially when investing in derivatives.”

He said that the use of leverage - fundamental to derivatives - in more Italian investment products would take Italy into an era of more modern and sophisticated asset management, and one where the investments of the man in the street would become more like those of large institutions.

But funds involving borrowing are inherently more risky so new, more stringent risk controls would be needed.

Mr Gentiloni Silveri said there would now be more chances for foreign fund providers to sell their wares in Italy: “Foreign providers in Italy have increased their market share and numbers during the past five years. Their services have become essential as Italians invest abroad more and more. Their success has been good and will get even better.”

He added that foreign back- and middle-office service providers would also be able to pick up business, as banks and fund managers outsource the increasingly complex job of administering and reporting on the new range of investments.

Other delegates were less positive regarding the new directive. Patrick Fauchier, chief executive of hedge fund specialist Fauchier Partners, said: “I think Ucits III is a step in the right direction, but there are still lots of questions to answer. For example, should closed ended hedge funds still be classed as hedge fund?”

Mr Fauchier called for the hedge fund universe to be split into two categories: “One will comprise very sophisticated, less liquid funds, which would have a similar status to private equity. The other will be more retail, simple products. They will often be long-short funds and it will be easier to control risks in these funds. They will be known as traditional hedge funds.”

Marco Campisi, general director of investment consulting company Consulenza Instituzionale, warned that Italian investors frequently did not fully understand hedge funds, which did not bode well for a market about to be introduced to their more extensive use. He said investors must be better educated in hedge funds.

Raffaele Jerusalmi, executive director of markets at the Italian Stock Exchange, said the new regulatory environment would encourage a convergence between hedge funds and long-only fund managers. While traditional fund houses are already encroaching on alternative territory, he said that hedge funds, presumably bolstered by their new respectability and suffering from a lull in the market volatility on which many of them trade, would start launching long-only products.

Mr Gentiloni Silveri said that one facet of the Italian investment scene would not change under the new regime: “I think that regional banks will continue to dominate sales of retail funds for some years to come.”

Francesco Gentiloni Silveri: investment opportunities and risks will increase