Euromobiliare brings bespoke products to clients

The desire to bring innovative solutions, specifically tailored to client needs have driven Euromobiliare AM, the asset management arm of banking group Credito Emiliano in Italy, to award a number of mandates to external managers over the past few years, and the sub-advisory activity is expected to grow in the future.

“Our success relies on our ability to propose investment solutions that meet client needs, and often these are not available through off-the-shelf mutual funds,” says Paolo Biamino, head of the fund selection at Euromobiliare Asset Management.

Having identified the right investment idea, which should have appealing risk return potential, the Italian asset manager assesses whether to manage the product in-house, if it has that capability, or to draw on external expertise, he explains.

This decision process has driven the firm to appoint Muzinich and Pimco to run target yield to maturity, aggregate bond fund mandates. The funds, which combined manage €2bn in total assets, invest in high yield and investment grade, but the Pimco fund has a tilt towards emerging market debt. A third sub-adviser, Putnam, runs a multi-asset strategy for €220m.

Having a captive distribution network with a good selling capability is certainly an advantage. The firm has such a track record in asset gathering that sub-advisers are generally happy to start their mandates virtually from zero and grow together, says Mr Biamino.

When awarding mandates, financial considerations obviously enter into the equation. A couple of years ago, the decision to give the second mandate to Muzinich and later to appoint Pimco was taken also in the view that a large amount of client assets was still invested in money market funds, managed in-house. These generated very low-yield for investors but also low margins for the banking group. The plan was to migrate the assets towards slightly riskier products that could generate a higher risk adjusted performance, but were also more remunerative.

The board of directors, the product development and sales team are all heavily involved in the sub-advisory decision making process, says Mr Biamino, stating that this business has created no internal conflict or rivalry between in-house and external managers. On the contrary, in-house fixed income fund managers, for example, give their valuable support on the discussions about the target date aggregate bond fund portfolios.

Track record, management team and risk management are all key factors when selecting a manager. Investment houses that, despite having a good track record, rely on the expertise of a single individual or a limited group of managers are avoided as too risky.

“We are not looking for the best manager who generates the best performance, but for the manager who is most suited to our client requirements,” he says. Sub-advisers, for example, must be used to managing open ended retail funds and must be experienced in running Luxembourg Sicavs.

One of the benefits of a segregated mandate is that it offers full transparency on the portfolio, which is crucial, especially with regards to the use of derivatives, says Mr Biamino.

The Italian asset manager’s policy is to avoid all the derivative instruments that cannot be used internally, at risk management level, as otherwise that would make it hard to monitor the sub-advisers.

“I generally propose we give managers guidelines that are suited as much as possible to the ability, experience and requirements of the individual manager,” he says. For example, Pimco, which is very experienced in this space, is allowed to use derivatives in its mandate for hedging purposes – and derivatives are particularly useful to hedge sovereign risk, as the fund invests in emerging bonds – while Muzunich is not.

In these volatile markets, flexibility is particularly important, says Mr Biamino. Total return products, such as the ones run by the sub-advisers, as well as those that the in-house range, are the best investment solutions.

To respond to client demand, Euromobiliare very recently appointed Neuberger Berman to run a new high yield mandate, similar to the second mandate awarded to Muzinich. This decision was also taken to avoid too much exposure to a specific third-party manager. Muzinich runs around $10bn (€7.2) in total assets and already runs €1.3bn in the two aggregate bond mandates for the Italian firm.

In the pipeline, there is possibly a new mandate in the relative return fixed income area. At the moment, there is no demand for equity funds in Italy, says Mr Biamino.

Paolo Biamino, Euromobiliare