ITALIAN ASSET MANAGEMENT INDUSTRY
Some lessons from the Italian asset management industry
In many senses, the Italian asset management industry differs significantly from its counterparts across the world. But with Ucits IV directives due, it is all set for some serious changes in the near future... and that too for better
Issue Date - 01/05/2011
The global economic crisis, along with the political and fiscal decisions of governments and the new rules, are affecting the asset management market significantly. Particularly, the harmonisation of European mutual fund markets, that began in 1985 with the introduction of the first Ucits directive2, seems to have reached a decisive moment of acceleration due to the approval of the new Ucits IV directives. It will provide a European passport to the companies, and will facilitate the promotion and the merger of cross-border funds.
The phenomenon of cross-border distribution, with an average annual growth rate amounting to about 11% (between 2002 and 2008), is likely to undergo further acceleration pushing the asset management industry towards rationalisation of funds, reduction of organisational structures, duplications and, above all, consolidation that will allow market participants to reach out to the critical mass – which is necessary to compete in the European and global level.
From a long-term perspective, the model focused on the coexistence, in financial groups, of the manager/product factory and distribution network, which is predominant in Italy. And this could prove to be inadequate and insufficient to support the realignment of the Italian asset management to the international best practices.
With reference to the cross border distribution of mutual funds, Italy is in a good position (3.081 foreign funds distributed), but after Germany (5.329), Austria (4.282), Switzerland (3.792), Holland (3.678), France (3.671) and Spain (3.559).
Some European countries have a higher call distribution than others: for example, Holland (87.6% of the total foreign funds), Switzerland (83%), Sweden (82%) and Italy (73%), while others (France, 23%, Germany 47%, United Kingdom 53% and Spain, 54%) are characterised by lower rates of foreign funds in total. Finally, Luxembourg and Ireland, where 47 of the top 50 asset managers in Europe are located, have a clear vocation to be an “exporter” country of funds.
The Italian asset management sector
The Italian asset management industry is moving in an unstable economic context and in a complex regulatory background, both at national and European level (Ucits IV).
The Italian economy in 2008 and 2009 was characterised by a sharp reduction in the GDP and instability of financial markets, in the wake of the international crisis. The asset management sector was so clearly influenced by the market crisis that, in 2008, it expressed its full gravity; the level of market volatility was the highest in the last 60 years and it was accompanied by a significant drop in stock prices... so significant that even the recoveries of 2009 were not sufficient to return to pre-crisis levels.
Regarding social and environmental factors, it is appropriate to mention the crisis of customer confidence to banks and the growing perception of insecurity to all financial products. After the losses suffered due to the crisis, customers are searching for some “plan vanilla” products that are simple and transparent.
At the policy environment, it is very important to point out the Regulator’s boost to a separation between production and distribution, which will help to redefine the competitive equilibrium.
In Italy, the weight of the banking channel in the distribution is predominant. None of the top 10 players in the sector appears to be independent of a banking or insurance group. In December 2008, the independent players were fighting slightly less than 5% of the AuM (Assets under Management) and in 2009, the situation did not change. The Italian asset management sector is still dominated by a “captive” model, which make the potential entry of new competitors in the market extremely difficult.
With respect to substitute products, the greatest threat comes from the products channeled to the final customer from the banking network. In the last period, mostly bonds, certificates and on-line banking deposits, which have a low profitability but, at the same time, the advantage of being liquid and transparent, have eroded the share of asset management products. Also, in the future, these banking products are the chief suspects as replacement capacity.
However, it should not underestimate the growth of products like ETFs/ETCs, because, thanks to lower operating costs and greater transparency, they appear to be strong internal competitors to the traditional mutual funds.
It is estimated that the asset management products are distributed to institutional customers for about 35% (about 517 billion of euros) and to Italian families for the remaining 65% (about 949 billion euros). In particular, 711 billion of euros are due to retail customers and small business and 238 billion euros to private customers.
It should be noted that the bargaining power of customers is greater with the ones within an increasing range of wealth and investment capacity. The current target of the asset management sector consists of the retail customers, with respect to the institutional and private, both in terms of numbers, AuM and profitability.
The retail customers have a low bargaining power and, therefore, suffer the pricing policies of distributor banks; while the institutional and private clients can have an impact on the product and pricing policies of the operators. Only the customer segment called High Net Worth Individual (HNWI) is receiving proper attention from the asset managers. This situation is due to the high average size of the clients, assets and the opportunity to offer them dedicated products and services. The AuM of the private customers decreased in 2008, but in 2009 it increased 19.2%, with an estimated amount of 882 billion euros, detained from about 640,000 HNMI families.
The Italian asset management players are characterised by different legal entities: the so-called Sgr and Sicav (which are respectively the asset management companies and the investment company with variable capital), foreign managers, investment firms, banks, and insurance companies. Nevertheless, the Italian context appears closed, very concentrated and, consequently, uncompetitive.
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