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Italian investors hold more money with overseas managers than any other European investors. The second largest third-party market in Europe has 84% of accessible assets invested in foreign groups. Investment appetite is also notably pro-risk in the third-party space, while the country’s fund buyers display broader exposure to a multitude of sectors compared to the European averages. However, while accommodative of international asset managers, the market is also highly concentrated and competitive. Success requires a detailed examination of the different product and distribution opportunities open to international groups – including several types of product wrappers.
Since the end of Europe’s sovereign debt crisis, Italians have been among the most enthusiastic fund buyers in Europe despite a dip in this year’s sales flows. Demand has been supported by local banks pivoting towards higher-margin products, and rewarding commissions encouraging the distribution of foreign third-party funds. This sales success also reflects a lack of suitable alternative savings products in the low-interest-rate environment. That said, households still have a large amount invested in current accounts and deposits. According to Bank of Italy/Assogestioni figures, over €1.37trn (of an estimated total of €4.2trn in Q3 2018) of household wealth is held in cash accounts.
Like the rest of Europe, the implementation of Mifid 2 has disrupted the marketplace, forcing distributors to review their business and revenue models in the wake of increased transparency. Early indicators suggest that wrapped products (mainly unit-linked) and sub-advisory solutions should grow in importance, which is likely to create further demand for third-party asset managers, particularly from financial advice networks.
Substantial fund sales have been generated via Italian product wrappers in recent years, including unit-linked, funds of funds, and discretionary portfolios. The attraction of wrapped solutions for local distributors includes their long-term orientation, higher fees, and diversification of business, especially during turbulent times.
At present, unit-linked continues to increase its market share at the expense of funds of funds. According to data from ANIA (the Italian Association of Insurance Companies), the retail unit-linked market amounted to €176bn at the end of 2018, with financial advisers representing the greatest share in terms of distribution channel (€92bn). Last year, unit-linked products attracted net flows of €30bn, €6.6bn of which was raised by the adviser channel, with €17bn distributed through banking and postal channels. The life-fund wrappers market is highly concentrated, with the top-five firms accounting for over 70% of the national market.
Meanwhile, the picture for gestioni patrimoniali (discretionary accounts), another popular form of investment wrapper in Italy, has been mixed of late. So-called GPMs, investing in a broad range of securities, saw hefty outflows in 2018, while GPFs, which invest specifically in funds, continued to generate new sales, again largely via financial advisers.
As the effects of Mifid 2 continue to emerge, it is likely that vertical integration will become even more commonplace in the Italian market. This doesn’t mean that opportunities will necessarily shrink, but it could provide further impetus for wrapped propositions – especially in life insurance – as well as sub-advisory arrangements. Unicredit (via Fineco AM) and Generali have been particularly active in seeking sub-advisory partners for new funds since Mifid’s implementation.
Banking groups with existing insurance subsidiaries will be at an advantage when it comes to unit-linked sales, but cross-border players interested in distributing their product ranges here through some form of unit-linked wrapper can take comfort from past successes. Notably, they include blockbusters like M&G Optimal Income and Nordea Stable Return that helped both groups grow their local visibility via this route.
Further insight on third-party fund opportunities in Italy can be found in Distribution 360.