UniCredit striving to bridge the cultural divide

For a private bank like UniCredit, which has grown by acquisition from its long-standing Italian roots to become a pan-European player, a well balanced management of cultural differences is vital for the smooth functioning of all parts of its business, including investment strategy.

“There are undeniable cultural differences in Europe, which need to be respected, but there are certain principles, when it comes to my role, on which I am not willing to accept any compromise,” states Manuela D’Onofrio, head of global investment strategy, private banking division at UniCredit.

The pillars that support a “healthy” asset management strategy relate to risk management, the importance of having a global vision of the economy and understanding its impact on financial markets.

But the strong home bias in the investment choices of clients in Germany and Austria means that some centrally-determined principles in portfolio construction need to be necessarily conceded to the regions. Together with Poland, the two German speaking countries are the group’s main operating markets, following UniCredit’s acquisition of HVB Group in Germany and Austria and Bank Pekao in Poland.

One recent example is the different attitude towards the European sovereign debt crisis, where Ms D’Onofrio decided to give autonomy to local investment directors, allowing them to continue investing clients’ fixed income portfolios mainly in German government bonds. This was despite the group’s monthly investment committee recommending a strong overweight of Italian government bonds, in the fixed income segment. “This is mainly a missed opportunity than a risk for the client. Our German clients, especially, have a German-centric vision of their investments,” reflects Ms D’Onofrio.

Similarly, since the creation of UniCredit Private Banking in 2003 in Italy, a considerable amount of time has been spent explaining to wealthy Italian investors the importance of diversifying away from their home market, she says. This would allow them to take advantage of opportunities in other parts of the world and more importantly, help avoid a concentration risk which was not adequately rewarded.

“Since the beginning of last year, we made a very strong call on emerging markets, for both fixed income and equity,” reveals Ms D’Onofrio. “While in Italy, our clients have followed us, although with some uncertainty, it has been much more difficult to propose the same investment case to Austria and Germany. Clients still do not understand that the world has changed and that so called ‘emerging markets’ have in fact already emerged.”

In January this year, the decision to go back to a neutral position on emerging markets was taken in light of the necessary restrictive monetary policies that central banks in these countries will need to implement to contain inflation, and because of expensive valuations compared to the US and, in particular, Europe.

Especially since the crisis, the focus is on the absolute risk and not the risk against the benchmark, says Ms D’Onofrio. “When we believe markets could involve risk of important losses for clients’ portfolios, we have not been afraid to dramatically reduce financial risks,” she states.

While in 2008-2009, it was possible to get reasonable returns of 5-6 per cent in corporate and high yield bonds, this year, without a significant equity exposure, it will be very difficult to achieve these kinds of returns.

After the financial crisis, the risk profile of all clients has reduced remarkably.

“Investors have a very underweight equity exposure compared to what we recommend, according to the different risk profiles, although they have responded very well to our strong positive call on corporate and high yield, both European and international,” she says. “This year, we have decided to have an important overweight on US equity, in our equity portfolio.”

The key drivers for US growth are flexible monetary and fiscal policies and growth of corporate earnings, due to the rising consumer demand. This should also lead to a reduction of the unemployment rawte, she believes.

Giving advice to clients in a way that leaves it open to interpretation is something Ms D’Onofrio decisively rejects. “We all know that when I say this is the year of the North American equity market, there are many unknowns that could prove me wrong. But if I had to list all the potential negative factors, I would never be able to give any advice to clients.”

Room for improvement

There is always room to improve financial knowledge of investors, believes Ms D’Onofrio. “The biggest prejudice is to think that government bonds are always safe,” she says, explaining that before scandals hit firms (such as Parmalat in Italy) the safe haven status was given to corporate bonds.

“Also, the Europeans have always this superiority complex towards the rest of the world which comes from our history. As have been big colonizers of those countries that have emerged, we cannot get round the fact that these countries that 100 years ago we kept as our spare, now can be stronger than us under a number of aspects. This is a big prejudice that the sooner is overcome, the better.”

Although there are entrepreneurs who have invested in those countries through their firms, individuals are still reluctant to invest in countries such as India, China and Brazil, especially those who have inherited their wealth and have not been involved in any professional activity.

Shopping on markets

Ms D’Onofrio, short-listed in the PWM Women in Wealth project in 2008, breaks with any possible cliché associated with the female universe. With a master in mathematics from the New York University, and a large part of her career spent in heavily male dominated work environments, Ms D’Onofrio acknowledges there may be still stereotypes and prejudices about women, even in recent times.

“For retired men that have covered important roles in firms, for the male entrepreneurial class of the after war period, meeting a woman telling them how they should invest their money is not at all a natural thing”. As the average private banking client in Italy is 60 year old, it is likely there will be a few of them that don’t find this natural.

Ms D’Onofrio remembers that ten years ago, having just been hired as director of investments at a regional bank in North Italy, went to pay a visit at his firm to an eighty-year old very important client of the bank, a Cavaliere del lavoro, Knight of work. “When I was introduced to him as the new director of investments, without even looking at me, he asked my colleague “Since when women have started making investments?”

Using that irony that characterises her, she said: “Cavaliere, we have spent so many years shopping at the markets, that we are now able to do our shopping on financial markets, too.”

Getting offended would be just the end, jokes Ms D’Onofrio.

There are very few women that occupy her same role in the industry, but that is because a job where a big part of the time is about figures does not represent a great attractiveness for women, who are very eclectic, she says.

“There is a very high technical component in my job, you need a very strong mathematical background, which many women do have, but then decide to do something else.

Mine is a bit like a craftsmanship job. Like a craftsman that does the same things for all his life you reach excellence with time, with great dedication and repetition.”

At the end, the question you have to ask yourself every time is whether the investment is dear and what the risks are. The methodology of analysis is quite repetitive, even if the situations change continuously, she says.

But there is also a significant non technical part when taking decisions in investments and when liaising with clients, where women tend to be favoured.

“Instinct in investments is very important, because you may well do 8000 tests, but then you may get to a point where it is your instinct that tells you what to do. And you need humility; the sooner you realise you have made a mistake, the better. If you get stubborn over it, you just make things worse.

The ability to communicate well is central too. “I do relate with people, I do speak to some of the biggest clients, in Italy, and the private bankers. Because if I do not convince them, surely I will not convince their end clients.”

Manuela D’Onofrio, UniCredit