LONDON -- INVESCO Asset Management Ltd. is strengthening its presence in continental Europe and is poised to launch an asset management operation in Milan, according to Jean-Baptiste de Franssu, chief executive officer for continental Europe.
The group expects to receive permission by the end of this year from the Italian regulatory authorities to launch a Societa di Gestione del Risparmio, said Laurent Huck, chief executive officer for INVESCO Italy, Milan. As an SGR, the firm will be allowed to locally manage assets and establish investment funds for Italian clients.
"We are at the periphery of the market until we get that approval," said Mr. De Franssu.
The launch of a fully fledged operation in Italy is part of the firm's relatively recent attempts to accelerate its marketing activities in Europe.
INVESCO has had an office in Paris for more than 10 years, but until recently had made little progress in bringing in new business. In 1997, however, the group made a strategic decision to beef up its activities in the region, said Michael Benson, chief executive for INVESCO Global.
INVESCO has roughly $12 billion in assets under management in Europe and around $1 billion in Italy. Officials hopes to increase the Italian business by $500 million during the next year, said Mr. De Franssu. The Milan office will make up the third corner of what Mr. De Franssu refers to as the Golden Triangle, with the other two corners being France and Germany.
"These footprints on the backbone of Europe are very important to us," said Mr. Benson. He also hopes to establish a presence for the money manager in Eastern Europe and Scandinavia.
Late in 1998 the group decided to expand its resources in Italy from the existing two-man sales office, and in May hired Mr. Huck to head the Milan office. He previously worked for Credit Agricole Indosuez, also in Milan, where he was head of asset management and global institutional clients.
In the past six months, INVESCO Italy has been on a hiring spree, appointing 11 new staff members. Last month, Mr. Huck hired Didier Adler as head of investments. Mr. Adler previously worked for Intesa Asset Management in Milan where he was a senior portfolio manager.
Mr. Huck hopes to hire at least six more people in administration, marketing and relationship management.
In July the firm won a mandate for an undisclosed amount to jointly manage a balanced portfolio for Cometa, the 400 billion lire ($223 million) defined contribution plan for Italian metal workers. The portfolio will be funded starting in early January and will be managed in a joint venture with American International Group, New York.
But consultants warn INVESCO may be facing an uphill battle to secure further business. Italy's pension market is new, relatively small and, due to the high level of competition among money managers, pension fund sponsors have been able to negotiate extremely low fees.
Local newspaper reports put fees for bond mandates late last year between 7.5 basis points and 12.5 basis points and for equities at 15 basis points to 25 basis points. This is roughly two times lower than management fees charged in other parts of Europe. Research conducted earlier this year by Watson Wyatt Worldwide showed average management fees for a $25 million global equity mandate from a French pension plan were 60 basis points but fell to 37 basis points for a mandate of $50 million. The figures in the Netherlands were similar with fees on a $25 million global equity mandate at 70 basis points and around 38 basis points for a $50 million mandate.
"In terms of their priorities these funds want to spend the least possible money and it's a buyer's business," said Piero Marchettini, managing partner for Adelaide Consulting, Milan.
It is difficult to calculate the current size of the Italian pension market, but Mr. Marchettini estimates roughly 1.3 million Italians are covered by pension plans. The overall amount of money coming into Italian plans is relatively modest at this stage, according to Chris Mayo, senior consultant for Watson Wyatt Worldwide, Reigate, England.
It also is difficult for international names to gain much of a foothold in this market without a local presence. Mandates given to international money managers so far have tended to involve a joint venture with a local bank.
"It's not easy for international money managers to pick up mandates unless they are well-known and prepared to work almost for free," said Mr. Marchettini.
However, INVESCO has in its favor its local presence and the fact that Mr. Huck is a fairly well-known figure in local money management circles.
Roughly two-thirds of the money INVESCO Italy now manages is in off-shore mutual funds for institutional clients. Mr. Huck is keen to develop the segregated account business, but said this will take time.
At this stage the needs of Italian pension funds are relatively uncomplicated and most mandates are for equity, bond or balanced funds.
"The Italian institutional market is in a transition phase," Mr. Huck said."The sharp fall in interest rates mean institutions are now realizing that they need higher returns. They are in the process of using more equities whilst digesting the concept of increased risk. What we are trying to do is develop a product that gives equity exposure but contains the risk on the downside."