Post-merger ‘myopia’ spurs Italian fund house crisis

The appeal of well-known brands for Italian distributors and the product innovation foreign firms tend to bring, together with the general growing open architecture trend in Europe, have combined to achieve explosive results in the peninsula. While net redemptions of Italian-domiciled funds totalled e37bn in the first eight months of the year, continuing and worsening the story of outflows which began in 2006, total net sales of foreign funds reached a record figure of e7bn during the same period. This positive result for cross-border companies has been marred by the net negative sales of e1bn during August, possibly due to the subprime market crisis. Total assets under management in foreign funds rose to e50bn, up from e22bn at the beginning of 2006, according to data from Assogestioni, the trade association for the Italian investment management industry. They now represent over 8 per cent of the e600bn Italian funds industry total. Within the domestic products, so-called Italian ‘roundtrips’ had a better fate. These products, domiciled outside the country, mainly to avoid the penalising tax regime imposed on domestic funds, and sold back to Italian investors, have increased their assets by e4bn since the beginning of the year, now totalling e210bn. One of the major causes of the crisis afflicting the Italian fund market can be found in the intense wave of consolidation that has swept the Italy in the past couple of years, leading to the formation of top banking groups Intesa Sanpaolo, Unicredit-Capitalia, Banco Popolare and UBI Banca, according to Fabio Galli, managing director at Assogestioni Senior management of Italian fund houses has suffered from “myopia” due to these mergers, keen to promote things which can bring short-term profits, like structured products. Moreover, the Italian fund industry is affected by a very high percentage of liquidity funds, which meet investors’ demand for low-risk products. Many Italian banking groups are relying on strengthening or developing an advisory service for their private clients and extending it to the mass affluent segment, in order to move investors to a more added-value asset class mix. But the net new inflows of e4.7bn in liquidity funds registered just during August proves just how difficult it will be to achieve such a transition. UBI Banca claims to be the first group to have launched an independent financial advisory service contract. It did this two years ago, within the BPU operation. Victor Massiah, managing director at UBI Banca, says his clients’ 30 per cent holdings in liquidity funds does not mean a win-win position, either for the bank in terms of return or, more importantly, for the clients. The re-balancing of its asset class mix cannot “be changed in a few days and with a magic wand,” he said.

Massiah: rebalancing asset class mix