MILAN, Italy -- Italy's infant pension funds are picking their first money managers.
Rome-based Fondenel and Milan-based Cometa are the first closed-end pension funds to make their picks since Milan-based Fonchim announced its hires a year ago.
In a slap to domestic managers, the 800 billion lire ($422 million) Fondenel fund for management workers at Italy's electricity utility, Enel SpA, surprised the market by selecting Merrill Lynch Mercury Asset Management Ltd., Los Angeles; J.P. Morgan Investment Management Inc., New York; Mediolanum State Street, a joint venture between Mediolanum SpA, Milan, and State Street Global Advisors, Boston; and Indocam Asset Management, Paris. The sizes and natures of the mandates were not revealed.
Cometa, the 400 billion lire metal workers' fund, has picked six balanced manager to run the entire pension fund. Trieste-based Assicurazioni Generali SpA and Milan-based Paribas Asset Management SGR SpA will each run conservative portfolios with equities capped at 10%; Turin-based San Paolo-IMI Institutional Asset Management SGR SpA, part of San Paolo-IMI and Milan-based Europlus CreditRolo SGR SpA, part of Unicredito Group, will run portfolios with stocks capped at 30%; and Cisalpina Gestione with Fin-Eco SIM SpA, Milan, and a joint venture between INVESCO, Atlanta, and American International Group, New York, will manage portfolios with 60% equity caps.
The fund also created a reserve list, apparently because fees offered are so low. On that list are Milan-based RAS Asset Management SGR SpA, Indocam and Credit Suisse Asset Management. And officials at Fondenergia, Rome, hope to decide on managers by the end of this month.
With an explosion of investment activity on both the institutional and retail fronts, it isn't a surprise that Western money managers are pressing to break into the Italian market.
Between 1993 and 1998, the volume of assets managed for Italian investors rose 500%, compared with 136% in the United States and 249% in Britain, according to the Investment Company Institute, Washington.
Much of this money came from retail and institutional investors that discovered that the down side of Italy's race to join the euro was that bond yields -- a traditional source of income -- had plunged.
Italian banks encouraged the shift to mutual funds and the proportion of Italians' wealth invested in mutual funds was about 18% in December, up from 11% a year earlier, according to the Italian Banking Association.
Looking for experience
"The Italians are endeavoring to make changes and they are willing to tap into the experience that the international companies have," said Colin McLatchie, chief operating officer of Edinburgh-based Scottish Equitable Asset Management PLC. The Milan office of Scottish Equitable International is selling a Luxembourg-based mutual fund and a unit-linked insurance strategy to Italian retail investors. Like many firms, distribution is being handled by a local partner, Banca Popolare Commercio & Industria, Milan. Talks are under way with another group to extend the firm's geographic reach, said Orla Ralph, who heads Scottish Equitable's Milan office.
Institutional investment is the key for both Merrill Lynch Mercury and Greenwich NatWest Asset Management, both of which await the final go-ahead from the Bank of Italy to start operations in their new Milan offices.
"In the meantime, for the last three years we have been working out of London and have generated some $3 billion in business," said Vivina Berla, who manages Merrill's Milan operation. She cited a joint venture with Prime, an Italian money manager belonging to Assicurazioni Generalei, Trieste, for which it manages $500 million in assets.
Meanwhile, recent legislation is forcing Italy's foundations to sell off their holdings in Italy's 70-odd savings banks over the next six years. This will create a 60 trillion lire bonanza for money managers.
The CARIPLO foundation of the Milan Provinces' Savings Bank, was the first to reinvest its assets. Subsidiary Intesa Asset Management, launch-ed the GEO mutual fund, which is targeted at foundations and in which CARIPLO is an investor.
Luca Grassadonia, assistant to Nicola Scocca, the head of advisorship at Milan-based Intesa Asset Management, said that, in the straight 10-way split, Goldman Sachs Societa' di Gestione SpA, Milan, and Merrill Lynch Mercury are to manage the balanced portfolios. These will be 95% developed country bonds, and 5% developed country stocks. J.P. Morgan and Western Asset Global Management Ltd., London -- acting under a mandate from Greenwich NatWest Ltd., Milan -- are to handle North American one- to three-year maturity bonds. The other six -- RAS SpA, Milan; Fidagest SpA, Milan; Zurich Investments SGR, Rome; EuroPlus CreditRolo; Paribas; and INA SpA, Rome -- have mandates for Euro one- to three-year maturity bonds.
At the same time, the CARIPARO foundation is meeting with money managers as it considers outsourcing asset management.
The CARISBO foundation may at some point outsource a 6% share of its funds, said Massimo Golinelli, general secretary. In such a case, the foundation would prefer fixed-income instruments, but no manager searches are under way, he said.
Open-end pension funds
Italy's new open-end pension funds -- available to self-employed workers and others -- also are garnering notice.
Zurich Investments Life SpA, Milan, launched one such scheme in April. Dubbed Zurich Contribution, it offers three options: guaranteed, conservative, and mixed. The first is 100% invested in bonds; the second is 75% bonds and 25% stocks; and the third offers a 35% to 85% spread of stocks, with 15% to 65% bonds.
Meanwhile, the Assicurazioni Winterthur Vita SpA insurance company, Milan, entered the market with its June launch of an open-end pension fund dubbed PreWidenza in association with Credit Suisse.
Not all the foreign institutions are going the same route in their approaches to the Italian market. As Vincenzo Galimi, press officer of Milan-based EPTAconsors SpA said, "In some cases, foreign institutions have bought minority stakes in Italian outfits. Putnam, for example, has a 20% share holding in Banca Popolare di Brescia.
"Meanwhile, Templeton Investment Management sells its own-name products via local distributors, and so on.
"In our case, Alliance Capital Management has a mandate to manage six out of our 24 funds. Most of the work on these is done in the United States."
Owned in a five-way split by the Cassa di Risparmio di Padova, CR Firenze, CR Genova, and CR Bologna, along with the Banco di Sardegna, EPTAconsors has announced that, having just broken the 20,000 billion lire bracket, it commands 5% of Italian assets under management and is thus 11th in the country.