MILAN - Money managers are smacking their lips at the prospect of carving up a potentially huge source of retirement assets in Italy.
The Italian Parliament is expected to give its final approval this week to a new pension bill that would pare benefits from the existing state pension system and encourage savings in private defined contribution plans.
Money managers are hoping to tap into a system expected to produce 20 trillion lira to 30 trillion lira ($12.7 billion to $18.9 billion) in new savings a year.
By 2010, the government reckons private pension funds will total 224 trillion lira ($142.5 billion) based on an expected 35% participation rate.
Both domestic and foreign-based managers are eyeing the market hungrily. Among the domestic players are Banca Commerciale Italiana, Milan, and Assicurazioni Generali Spa, Trieste. Interest also is coming from London-based Robert Fleming, Stockholm-based Skandia SE and New York-based Merrill Lynch & Co. Inc.
"Italy is one of the most interesting markets for private pension funds, and it should develop nicely in the future," said Charles Beazley, managing director for Merrill Lynch Global Asset Management, London.
The draft bill, being debated by Parliament at press time, would encourage both employer-sponsored and individual retirement plans. Both single-employer and multiemployer plans would be allowed.
For employer-sponsored plans, contributions equal to 6% of pay could be poured into the plans: 2% of pay each from employers and employees, plus another 2% taken from the book-reserved state severance pay system.
In total, annual contributions per employee are capped at a fairly low 2.5 million lira ($1,575). Still, assets should soar over time, which make them an attractive target for money managers facing a shrinking marketplace elsewhere.
Banks, insurance companies, societa d'intermediazione mobiliare (SIMs) and unit trusts are eligible to manage pension assets.
Participants will be able to switch money managers no more than once every three years, with a minimum of five years in the case of a new pension fund. Participation in employer-sponsored plans will be voluntary.
Foreign-based managers will have an equal crack, but those based outside of the European Union will have to set up an office in Italy in order to compete.
Insurers have best shot
Italian insurers may well have the best shot initially because of the conservatism of Italian workers. According to a July survey by Ipso, an Italian pollster, 86% of Italian workers favor guaranteed products despite the lower rates of return.
Thus, heavyweight domestic insurers - including Assicurazioni Generali Spa, Riunione Adriatica di Securta Spa, Milan, (which is controlled by German insurer Allianz) and Sai Spa, Torino - are gearing up.
Both retail banks and savings and loan institutions are racing to win their share.
One of the top 10 domestic money managers is Milan's Casso de Risparmlo delle Provincle Lombarde Spa, known as Cariplo. Cariplo's group includes investment fund Fondigest Spa; insurer Carivita Spa and Intercassa Spa, a SIM. The parent company enjoys a variety of products and a distribution network of more than 1,700 branches.
"We will operate under the Cariplo name and distribute as many products as possible, including collective and individual trusts, closed or open-end," said Massimo Lanza, vice president.
Milan-based Banca Commerciale Italiana is working on several fronts. Like Cariplo, it can operate through its banking entity, or through a SIM called Consulenza e gestione finanziara Spa. COGEF is a joint venture, with 40% each held by BCI and Assicurazioni Generali and 20% by Robert Fleming.
"Back office work will be handled by Previnet Spa, equally co-owned by BCI and Generali," said Enrico Maiocchi, head of marketing for COGEF. Fleming is providing money management expertise.
Major real estate owners also are hoping to market to pension funds. With a severely recessed real estate market, many landlords are eager to sell. But some experts fear pension funds could end up holding crumbling assets.
Among the major Italian property owners is former Prime Minister Silvio Berlusconi. Critics note Forza Italia, Mr. Berlusconi's party, had lobbied to permit pension investment in property.
Strong union influence
Meanwhile, unions - which traditionally enjoy a great deal of power in Italian politics and corporate affairs - are attempting to develop potential pension assets as a new power base.
Confederazione Italiana dei Sindacati dei Lavoratori, an alliance of 22 unions, has entered into a joint-venture agreement with Alico Spa, a Milan-based life insurer owned by the American International Group. Through a new entity called Unionvita Spa, both parties will market insurance products to union members.
"With a total of 4 million CISL members at work and in retirement, Unionvita has the potential to offer insurance opportunities for its members at the individual level and collectively through one or more employers," said Vic Allen, Alico regional director in Paris.
Meanwhile, the three major Italian unions each hold a 10% stake in Unipol, an insurer. While the union alliance plans to shrink its stake, a Unipol subsidiary geared for union workers also will pitch for retirement plan business.
Major Italian companies, including Fiat Spa, Torino, also will set up their own plans. Experts said companies hope to win better commercial loan rates from banks with which they place their pension business. Also, companies hope to win favor with employees.
Foreign money managers also are angling to get a piece of the business. Some already are present in Italy, such as SBC Warburg, Robert Fleming and Merrill Lynch.
"The present law draft has lifted all restriction on foreign managers and is in line with the EU directive. Future reform should further ease access to the Italian market for non-EU managers," said Cino Raffa Ugolini, a Milan-based attorney.
"We see no great impediment to offering our services in Italy," confirmed Merrill Lynch's Mr. Beazley. Merrill has a joint venture with the Prime Mutual Fund group, which is controlled by Fiat, with $500 million under management, but it is considering other options for penetrating the market.
Mr. Beazley conceded "insurance companies with a local market should do very well in the short run."
Italian pension reform also has caught the eye of the Swedes. Skandia, one of Scandinavia's largest assurance and financial services companies, is in the process of creating Skandia Vita Spa, which will market to Italian retirement plans according to Jan Carendi, chief operating officer of Skandia's long-term savings division in Stockholm.
Instead of linking up with a local partner, Skandia plans to transfer the technology used by its Spanish subsidiary, Intercasser, to Skandia Vita.