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Italian wholesale investors

Investors look beyond bonds

Despite a number of macroeconomic headwinds, the Italian market is proving to be an attractive destination for asset managers pursuing capital. Italian retail investors have a deeply embedded savings culture, but their longstanding preference for traditional assets such as bonds, particularly bank bonds, has been progressively diminishing.

Key insights

  • As Italian investors move away from bonds, asset managers have an opportunity to raise funds in the domestic market
  • The desire to invest in new products is strong in Italy as evidenced by the success of the PIR, although there are concerns that these vehicles could introduce risks for non-professional clients
  • Sub-advisory mandates are a growing market in Italy, and their popularity is expected to continue to increase

Following the financial crisis, Italian retail investors were attracted to bank bonds, but the well-documented challenges and subsequent bank bailouts saw many subordinated bondholders accrue heavy losses.1 Many Italian investors have since transitioned away from bonds, with the local regulator Commissione Nazionale per le Societa e la Borsa (Consob), estimating that the proportion of bank bonds held in retail portfolios fell approximately 28 percent between 2015 and 2016.2

Italian investors are broadly viewed as risk averse, with many reluctant to put their capital to work in equities, citing volatility fears, while low interest rates have deterred allocations into other types of bond instruments.3 As a consequence, investors are looking towards asset managers to help maintain their wealth and grow savings.

The growth of asset management

Multi-asset products have registered strong growth in Italy over the last few years, accounting for approximately 31 percent of the value of the funds distributed in the country.4 A report by Deloitte acknowledges that exchange-traded funds (ETFs) have also gained traction in Italy, with assets under management increasing from EUR 18.2 billion in 2012 to EUR 47.7 billion at the end of 2016.5

Furthermore, innovative new fund structures have emerged over the last year, drawing in further capital from the retail market. As part of the Italian government's initiative to encourage more people to invest in domestic securities and provide small to medium-sized enterprises (SMEs) access to capital markets, it launched the Piani individuali di risparmio (PIR), a savings plan product that has so far received an encouraging reception.6

PIRs invest 70 percent of their assets in the local market, of which one-third is earmarked for SMEs.7 PIRs attracted EUR 10 billion in their first year alone, well above the EUR 2.0 billion of inflows originally forecast by the government.8 These products are anticipated to draw in up to EUR 12.4 billion over the course of 2018, and a further EUR 70.0 billion in the next five years.9

While PIRs have been applauded, some argue that they are too heavily concentrated in the Italian market which could expose investors to undue risk.10 Others have pointed out that some of the holdings in PIR products are niche and specialized, making them more suitable for institutional investors focused on the Italian market rather than retail consumers.11

Sub-advisory grows in Italy

Innovative new fund structures have emerged over the last year, drawing in further capital from the retail market

Sub-advisory mandates, under which a wealth manager, insurer, bank or fund manager outsources investments to a third party, are a growing source of capital for asset managers in Italy. Cerulli Associates found the sub-advisory market accounted for EUR 480 billion of assets in Europe, of which Italy had a 15% market share.12 Recent research shows the sub-advised fund market in Europe could reach EUR 800 billion by 2022.13

With Italian investors digressing from equities and bonds, sub-advisory platforms are attracting robust flows as they give allocators access to funds that may not typically be available through traditional distribution networks, such as boutique asset managers or firms running niche strategies.14

The move more broadly towards sub-advisory is also being abetted by regulatory change, most notably the Markets in Financial Instruments Directive II (MiFID II), which introduced a ban on inducements and requires firms to adhere to more stringent disclosure and product governance rules. This may lead to greater information sharing and coordination between managers and their distribution partners in order to enhance deliverables to clients.15

In response, distributors and wealth managers are implementing vertical integration strategies and increasingly using sub-advised and fund-of-fund structures, an approach that gives clients access to more tailored solutions and products.16

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  1. Global Capital (2018) Special Report: Italy in the Capital Markets 2018
  2. Ibid.
  3.  Ibid.
  4. Deloitte (May 2017) Asset management in Italy: A snapshot in an evolutive context
  5. Ibid.
  6. Financial Times (January 27, 2018) New tax efficient savings plan tempt Italians into equities
  7. Ibid.
  8. Ibid.
  9. Ibid.
  10. Investment Europe (April 24, 2017) Italy's PIR funds: Capitalising on new instruments
  11. Ibid.
  12. Investment Europe (May 9, 2018) Sub-advisory space growing fast notes Cerulli report
  13. Institutional Asset Manager (September 27, 2017) Fund distribution and investment sub-advisory in Europe to transform rapidly after MiFID II
  14. PWM (April 20, 2017) Sub-advisory opens door to niche and bespoke products
  15. Institutional Asset Manager (September 27, 2017) Fund distribution and investment sub-advisory in Europe to transform rapidly after MiFID II
  16. Ibid.