Here we are in Italy, the second stop of our journey to explore how successful fund distribution may be achieved throughout Europe. Below some useful considerations on size and nuisances of the Italian market, as well as the regulatory processes overarching authorisation of local fund distribution.
A few statistical data on recent trends of the Asset Management sector in Italy (never hurts)
Sometimes figures catalyse the attention only to numeric factors and do not push people to explore, at least not intuitively, other factors – like the human ones – that may also play an important role when having to assess and evaluate an action to take. Or not to take. They are part of the picture, but not the full picture. This is why when we decided to focus on Italy, a thought immediately went also to the Italian AM industry to analyse its recent trends. We could not avoid en empiric consideration as a starting point for further analysis. Let’s then see concretely how things went in 2014 and how they are progressing so far in 2015.
We are not mistaken in saying that the Italian AM industry is witnessing an interesting and continuous positive trend: likewise in certifying that Italian investors seem to still privilege other funds than equities. The reasons of such preference are to be found in the local cultural approach to savings and how to protect them. By taking a comparative view in terms of Household saving rates in Europe, today Italy remains above the EU average and experiences since 2013 an interesting increase, although this is not comparable to the results achieved during the “golden age” in the 90s.
Source: Assogestioni “2015-02-18-the-italian-am-mkt-key-facts-dec-upd-def.pdf”, page 36.
In spite of any political considerations - that may easily trigger discussions and obvious debates - the Italian AM industry seems to be in a pretty good shape. And this is not only a "spot trend" rather an encouraging sign of healthy recovery. Indeed Assogestioni's (the Italian Fund Association) monthly and quarterly statistics are an objective and efficient indicator that may be followed without too much effort. Now, let's continue and dig out more about the Italian fund industry.
Considerations on the regulatory aspects of the offer of funds to Italy
Historically, the marketing of foreign funds in Italy – UCITS and especially non-UCITS – has been constrained by the absence of a private placement regime, so that any offer of such funds required to be authorised locally. Even with the recent implementation in Italy of the Alternative Investment Funds Manager Directive, which well represented – at least in our view - an opportunity to reshape the existing regulatory framework, private placement remains today not an option. Once ascertained that the only route to pursue for distribution in Italy is the one of the authorisation, let’s see what are the options offered for UCITS and AIF proposed to be marketed to Italian investors.
UCITS passport – professional vs. retail – light and full registration regime
Traditionally - within the "harmonised" fund world, hence UCITS - the Italian Market can be accessed through a notification process that may vary according to the typology of investors targeted. In fact, there is an option to obtain authorisation to offer a UCITS only to professional investors or to the broader – retail – market. If a fund is intended to be marketed only to Professional Investors, the so called "light registration" regime applies and the requestor has to go through the usual UCITS IV “Home to Host Regulator” (10 + 5 days) process, with the only requirement to provide KIID documents in Italian as well as to publish NAV. There are no other formalities to abide and/or special marketing arrangements to take into consideration, as we will see further down be the case of the retail “full registration” regime. This is indeed a light process in terms of administrative burden, but allows for targeting of a much narrower range of investors (please see Consob Regulation on Issuers for details of the categories of investors falling under the definition of professional investors.).
If the fund is intended to be sold to Retail Investors (so called "full registration" regime), then there are a few more steps to take in addition to the classic registration process "Home to Host Regulator" (10 + 5 days) detailed above. These are as follows:
- Appointment of a local paying agent, to act as i) intermediary in subscriptions, redemptions and conversions; ii) entity in charge of the offer with Italian investors; iii) Italian withholding tax agent;
- Production of the Subscription Form, to be used by Italian investors to subscribe, redeem and convert shares of foreign passported UCITS through the paying agent;
Fulfilment of a local requirement, the Publication Procedure with Archivio Prospetti of Consob (the Italian Regulator) after initial approval and in case of on-going update of fund documentation.
Regulatory reporting to Consob, the Italian regulator
Consob also imposes two kind of regular reporting to UCITS funds registered in Italy. The table below summarises their key features and related deadlines. These obligations are discharged electronically, through the Teleraccolta system implemented by the Italian regulator.
When looking at the way investment funds can be sold in Italy, and the various existing options, choices may be driven by strategic, economic, personal or even other considerations and this explains why we tried to summarize below to some key points that will have to be deepened according to the approach that the fund intends to adapt. There’s no good or bad solution, but rather a need to carefully consider all elements of the puzzle prior to selecting a channel rather than another one.
Listing of UCITS funds on ETFplus market segment launched by Borsa Italiana
Since December 2014, Borsa Italiana, the Italian stock exchange, has opened a new market segment – the ETFplus – allowing for listing of open-ended funds (UCITS). Such opening by Borsa Italiana comes after few years of work and discussions, which have seen Italian authorities focussing on reshaping the local market and finding new ways for investors to access, in an easier fashion, a broader range of investment products. Not a simple task considering the rather conservative approach that distinguishes some sectors in Italy – initial discussions on this project go back to 2008 - but at least, in the end, a welcome change that aligns the Italian market to other European markets, where such variety of products on offer was already a reality.
The objective of creating new and easier ways for investors to access diversified products in the market is achieved this time through the creation of a new electronic market segment on the Italian stock exchange market, where investors can buy and sell open-ended funds. From a more technical standpoint, besides offering to investors the safeguards of an efficiently regulated and highly supervised market, the distinguishing features of the ETFplus can be summarised below:
- The funds listed by various issuers will be available to intermediaries already admitted to such market segment;
- The NAV of the relevant trading day, calculated and sent to Borsa Italiana by the fund issuer, is the trading price;
- Fund shares and units will be dematerialised and settled in Monte Titoli like any other instrument.
Of course, with few months from the launch of this new market segment and only a handful of fund issuer listed on the ETFplus, it is still early days to have information such to allow for a complete set of conclusions on the subject. Only suggestion we might want to make - with great modesty - when preparing a potential case for listing, is to consider this channel of distribution within the more traditional channels already implemented for that particular fund and evaluate, using a wise dosage of lateral thinking – encompassing operational, commercial and political considerations - the impact that adding this new channel could have on the whole distribution strategy.
AIFM passport – nothing new under the sun?
The full implementation of the Alternative Investment Managers directive has been recently finalised, with secondary implementing measures being published in the Italian Official Gazette a few days ago. Same as we saw with UCITS - even though this time due to the AIFM directive itself rather than a nuisance of the Italian regulation – European AIF proposed to be marketed to professional investors are subjects to different – and lighter - rules and requirements than the ones applicable to AIF intending to market to retail investors.
By and large, the marketing passport introduced by the AIFM directive is inspired to the successful UCITS passport and its process, accordingly, is electronic and carried out between regulators. The delay for the approval is longer (20 days) and the documentation required slightly different and more articulated than the one for the UCITS, but in essence we may want to conclude that there are no substantial differences in the processes when we consider marketing vis-à-vis professional investors. Interestingly from an Italian perspective, Bank of Italy (one of the regulatory authorities in Italy), which did not take any part in the passport of UCITS after UCITS IV, is now mentioned again as the ultimate recipient of information related to the various applications for passport of AIF.
As far as the marketing to retail investor is concerned, at a very high level, Italy allows marketing of European AIF under the main condition that the European AIF is already marketed to retail investors in its Home State. As part of this process of authorisation, which is a two-step one if you will, immediately after the passport for professional investors is obtained, it is required to file an additional application directly with Consob. It has to be noted that, as part of this second step, amongst other things, a local paying agent and distributor will have to have been appointed.
Like often it happens in life, good things and remarkable results must be deserved and the Italian Fund Market has indeed some intrinsic and undeniable complexities - that may also be seen as a richness at a second reading - that should not demotivate readers from considering to go further and learn more about the potential - but also the associated direct and indirect costs - of penetrating such market.
It goes without saying that the fact of deciding to enter the Italian AM market should not – in any circumstances – only be based on superficial considerations and/or ”copied” from what other players may have done, regardless the fact that their choice has been successful or not.
We sincerely advise to build first a business case that takes into account all factors such as (not exhaustive list):
- intended target investors – this is the most important of it all
- sought local marketing strategy (that may vary according to the selected target)
- budget constraint
- strategic considerations (it may be decided to register because the fund has to be there, rather than because a potential has been identified…)
- costs, both direct or indirect
- local actors to appoint
- regulatory fees (entry & maintenance)
- timing (key element that was emphasized by our friend Sejad Imamovic in the article on fund distribution in Slovenia)
We hope the above is useful addition to the knowledge you already had on Italy and we’d be pleased to hear if you have any questions.
Stay tuned to hear more whilst we continue our journey and get in touch if you want to suggest what the next destination should be!
Attilio & Luca