MILAN -- Fonchim, Italy's first private pension fund, has named six money managers to manage 122 billion lire ($68 million) in assets.
The search was widely watched as Fonchim is the first of many private pension funds starting under Italy's new pension law. Funds serving metal, food, retail and ceramics workers are gearing up, as is a fund serving Italian dentists. InterSec Research Corp., London, expects private retirement assets in Italy to nearly double to $120 billion by the end of 2002.
While Fonchim's pension assets are small by Western standards, they are expected to climb to 210 billion lire by the end of the year, as the number o'f plan participants in the chemical and pharmaceuticals industry fund is projected to soar.
Whittled from an initial list of 42 candidates, Fonchim officials hired three European bond managers, investing in issues with one- to three-year maturities, and three balanced managers, which have a 40% European bond and 60% global stock benchmark. Assets will be divided evenly among the six portfolios -- or roughly 20 billion lire each.
While these amounts are hardly inspiring in terms of volume, "the prestige of being in on the ground floor is what counts," said Roberto Scippa, director of press and external relations for Milan-based Mediolanum bank, whose joint venture with State Street Global Advisors, London, was one of the winning combos.
Selected for the bond mandates were Assicurazioni Generali, Trieste; Riunione Adriatica di Sicurta, Milan; and a joint venture between Citibank, London, and Unipol, a Bologna-based insurance companies with union ties.
For the balanced accounts, Fonchim has picked three joint ventures: Milan-based Credito Italiano teamed up with Bologna-based Rolo Banca 1473, in which it holds a 45% stake; Istituto Mobiliare Italiano SpA, Rome, and Unionvita, a Rome-based insurer that is 49% owned by the CISL trade union federation; and Mediolanum and SSgA. Contracts have not yet been signed.
Of the balanced portfolios, the benchmark will be 20% Italian, 14% European Union (ex-Italy), 20% United States, and 6% Japan.
Even though the defined contribution fund has no retirees -- in fact, 85% of participants are younger than 50 -- it has only a 30% equity exposure.
Andrea Girardelli, newly named director of Fonchim, said prudence had been the key word in setting the asset mix. Indeed, Fonchim had decided to use as the target rate of return the yield offered by the TFR, or end-of-service bonus due to most employees of Italian companies.
"This is set by law and works out at 75% of the inflation rate (now 1.7%) plus 1.5%," explained Mr. Girardelli whose last post was with a money management joint venture between Societe Generale and Casa di Risparmio di Verona, and included a six-year spell with Consob, the Italian stock market regulatory board.
"We might change this mix at a later date," he said.
While many European funds now regard any investments within the European Union as domestic, Mr. Girardelli said he believes it is normal for any country to favor its national stocks.
In addition to announcing the final choice of asset managers, Fonchim's board of trustees also selected the Istituto Centrale delle Banche Popolari, Milan, as the custodian bank, with Andersen Consulting's Milan office as the fund administrator.
Fonchim has recruited 70,000 members out of a potential 140,000 chemical and pharmaceutical workers. In the next few weeks, though, glass and lamp manufacturing workers will become eligible to join the fund, thus boosting the final number of potential participants to 200,000. Of the current members, 30% are younger than 35, while 55% are between the ages of 35 and 50, and the remaining 15% are older than 50.
Italy's private pension system is just getting started. With Italy's existing pension funds accounting for 1.2% of gross domestic product -- compared with 59% in the United States and 80% in Britain -- there is a long way to go.
Italian legislation provides for so-called "closed" pension funds for workers by industry, to be sponsored jointly by employers and trade unions. For the self-employed, there will be "open funds" sponsored by banks, insurance companies and Societe di Intermediazione Mobiliare, or SIMs.
Proposals for 61 "open" funds have been approved by the regulator. After meeting additional regulatory requirements, the first open fund is expected to be launched later in the year.
As Piero Marchettini, managing director of Adelaide Consulting srl in Milan said: "Bureaucracy is the name of the game here."
Undaunted, the outfits offering open and closed funds are pressing ahead. The energy workers' fund, dubbed Fondenergia -- with 45,000 potential members -- is in the process of selecting its administrators, to be followed by its money managers. The potential number of participants is 17,000.
Andersen Consulting is in the bidding. "We would like to build on the expertise we have developed," said Marco Bressa, an associate partner. "We are particularly excited by the way we have managed to incorporate the Internet as a communications and active information tool."
Another scheme that is moving along is Cometa, the fund for Italy's 1.2 million metalworkers. Massimo Colombo, external relations director for Federmeccanica, the metalworking industry association based in Milan, said 140,000 employees in 4,500 companies have until Aug. 17 to vote for delegates who, in turn, will appoint a board of trustees.
Once the board is appointed, Cometa will be able to invite tenders for administrators and a custodian bank, after which it can pick managers.
Other funds at various stages of preparedness include: Alifond, which has a potential 300,000 members within the food sector; Fonte, which will cover 4 million workers in the retail, tourism and services sectors; and Foncer, which has a potential membership of the 40,000 people who work in the ceramics field.
