Hedge funds in Italy: An update
By Cristina Calderoni, MondoHedge
The Italian hedge fund industry continues to grow. As of December 31 2005, it reached €17 billion in assets under management – an increase of 44% over the end of 2004, when total assets under management were €11.8 billion (see Figure 1).
Figure 1: Italian hedge funds industry asset growth
Data in billion Euro
Source: MondoHedge
Currently 34 speculative SGR (Società di Gestione del Risparmio), or asset management companies dedicated exclusively to hedge funds) manage 161 funds, compared with 131 as of December 31 2004. The Italian arena continues to consist mainly of funds of funds. Currently, nearly 50.6% of SGR are managing their multi-manager portfolios without the help of an advisor, compared with 44% at the end of 2004. At the end of December 2005, foreign advisors were assisting in the management of 49.4% of assets, compared with 56% in 2004.
With respect to asset management companies, there are currently eight alternative SGR managing more than €1 billion euro through hedge funds and FoFs, with a combined market share of 70.4% (see Figure 2). In terms of assets, the largest Italian FoF manager is Duemme Hedge SGR with a market share of 12.10% and 17 multimanager products.
Figure 2
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Speculative SGR
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MARKET SHARE*
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1
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Duemme Hedge Sgr
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12.10%
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2
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Kairos A.I. Sgr
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10.57%
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3
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Pioneer A.I.M. Sgr
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10.40%
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4
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Aletti Gestielle Alt. Sgr
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8.48%
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5
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Mps A.I. Sgr
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7.93%
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6
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Ersel Hedge Sgr
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7.66%
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7
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Nextra A.I. Sgr
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6.80%
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8
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Crédit Agricole Aipg Sgr
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6.49%
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9
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Hedge Invest Sgr
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3.86%
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10
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Bipitalia Alternative Sgr
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2.83%
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11
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Sanpaolo Imi A.I. Sgr
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2.74%
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12
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Akros Hfr A.I. Sgr
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2.04%
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13
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Global Selection Sgr
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2.03%
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14
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Capitalgest A.I. Sgr
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1.88%
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15
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Unifortune Sgr
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1.85%
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16
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Pwm Sgr
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1.52%
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17
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Euromobiliare A.I. Sgr
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1.27%
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18
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Generali I.A. Sgr
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1.11%
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19
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Bim A.I. Sgr
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1.10%
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20
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Pirelli Re Opportunities Sgr
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1.10%
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21
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Ubs Ai Italia Sgr
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0.92%
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22
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Fineco I.A. Sgr
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0.86%
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23
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JP Morgan I.A. Sgr
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0.78%
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24
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Albertini Syz I.A. Sgr
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0.71%
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25
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Azimut Capital Management Sgr
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0.66%
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26
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P&G Sgr
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0.46%
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27
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Ras Ai Sgr
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0.43%
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28
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Morgan Stanley Sgr
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0.40%
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29
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Gottardo A.M. Sgr Alt.
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0.33%
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30
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Cartesio A.I. Sgr
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0.32%
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31
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Dws A.I. Sgr
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0.19%
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32
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Zenit A.I. Sgr
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0.10%
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33
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Finanziaria Internazionale Ai
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0.06%
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Total
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100.0%
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By examining the performances of the MondoHedge FoF Indices (see Figure 3), it is clear that Italian FoF returns finished 2005 on a positive note. The MondoHedge FoF Indice Generale was up 4.96%.
Figure 3
MondoHedge Indices*
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Name
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Return 2005
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Return Jan-03/Dec-05
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Return Jan-02/Dec-05
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Launch Date
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MH FoF Indice Equity
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6.39%
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11.82%
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18.86%
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Jan 2002
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MH FoF Indice Specialist
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6.39%
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11.81%
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19.25%
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Jan 2002
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MH FoF Indice High Volatility
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6.42%
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11.42%
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18.45%
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Jan 2002
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MH FoF Indice Medium Volatility
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5.25%
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10.07%
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17.76%
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Jan 2002
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MH FoF Indice Generale
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4.96%
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9.61%
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16.80%
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Jan 2002
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MH FoF Indice Multistrategy
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4.83%
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9.38%
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16.54%
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Jan 2002
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MH FoF Indice Low Volatility
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3.85%
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8.00%
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14.64%
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Jan 2002
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MH FoF Misti Indice Generale
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6.25%
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10.67%
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-
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Jan 2004
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Data updated at December 2005
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*Estimated data – equal weighted version
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With regard to investors in Italian hedge funds, high net worth individuals continue to represent the most important clients in the alternative sector, with 72.2% of industry assets coming from wealthy private individuals. However, it is also true that according to a survey conducted by the MondoHedge Research Department the weight of the private sector is declining compared with 12 months ago, because it is being eroded by the growth sustained by institutional investors, which now account for up to 24.4% of assets compared with 14.5% as of last year.
It is logical to expect the amount of seed money - funds provided by the shareholders of the alternative SGR to start up a business - to fall considering that these days the majority of players have left the start-up phase. Within the span of 12 months, seed money has slipped from 5.2% to 3.4% of total assets.
The number of subscribers per SGR is also changing. The smallest company in terms of subscribers has barely more than 10 clients while the largest operator has over 2,000. The average number of subscribers per alternative manager is 490.
The Products
Hedge fund investments accounted for 3.4% of the overall Italian investment industry as of December 31 2005.
During the fourth quarter of 2005, the assets of Italian FoFs grew from Eur16.7 to Eur17 billion, while single manager hedge funds saw net inflows of €112 million, growing to a total €478 million under management.
Currently, the 137 FoFs account for 96% of the market (compared with 97% at the end of December 2004). Meanwhile, single manager hedge funds continue to represent the smallest part of the industry, with 10 products and a market share of 2.9% . Two new speculative real estate funds were launched in the Italian hedge funds industry and represent a share of 1.2%.
Outlook
The number of speculative SGR is still growing. Four new SGR have recently received the go-ahead from the Bank of Italy: Finanziaria Internazionale SGR (Finint), Ras Alternative SGR, Pirelli Re Opportunities SGR and Lyxor SGR. Yet another new SGR is also likely to receive authorisation soon.
It is also important to note that 2006 started off with the arrival of many innovative products. The Italian SGR decided to take advantage of all the nuances of the current industry regulations. In particular, operators capitalised on the new rules introduced by the Regolamento Unico (Bank of Italy’s regulation dated April 14 2005, which collects all the rules on speculative funds) and the possibilities for using speculative funds (the term provided by the Legislator to name single manager as well as FoFs) as a vehicle to launch various hedge fund or alternative products with innovative characteristics.
As a result, the first speculative real estate funds and the first products using coupons were born. However, let us start at the beginning by analysing the new products introduced as a result of recent provisions from the Bank of Italy.
Open-ended non-UCITS funds
Open-ended non UCITS funds is a new category of products resulting from the Regolamento Unico. These products create a small opening in the retail market, because they may invest up to a maximum of 20% of their total assets under management in Italian and foreign hedge funds as long as they meet the conditions stated in Title VI, Chapter V, Par 2 regarding the marketing of open-ended non-UCITS funds in Italy.
In addition, they do not have a minimum investment amount such as the Italian speculative funds do (the minimum investment threshold is Eur500,000). The first two products in this new category are Ducato Multimanager Cash Premium of launched by MPS Asset Management SGR and Arca Rendimento Assoluto T5 launched by Arca SGR. Other companies, such as BNL, BPM Gestioni, Ersel, Nextra, Pioneer, Sanpaolo and Capitalgest, are also about to launch these products.
Speculative real estate funds
Finanziaria Internazionale (Finint) was the first company to launch an Italian alternative real estate fund with its Giudecca fund. The advantage here is to be able to create funds with profiles specialising in diverse asset classes, thanks to the possibility for speculative funds to waive leverage and concentration limits that applay to traditional real estate funds. Finint AI SGR is planning a series of funds with diverse specialisations and active types of funds that will allow them to significantly diversify their range of investments for clients.
However, now Finint will have to compete with Pirelli Re Opportunities SGR, controlled by Pirelli SGR, which will promote, create and manage closed opportunistic speculative real estate funds that are reserved for qualified domestic and foreign investors. The company is starting the new SGR at the same time that it is launching its first alternative product, the Spazio Industriale fund. This fund specializes in real estate for industrial, logistic and artisan use.
Speculative private equity funds
Private equity/mezzanine funds are currently a niche market in Italy. Presidio SGR manages the first Italian closed hedge funds specialised in mezzanine investments and intermediate capital investments that can be used in acquisitions, consolidations and strategic development for small to medium sized companies operating in the Italian market. Mezzanine funds are a form of financing with a risk/yield profile that is in between that of investments in risk capital and investments in debt capital, with a medium-term maturity that is generally no more than eight years and has guarantees such as rights to the shares of the company being financed.
The ‘risk capital’ component is generally in the form of rights to stock represented by the risk capital of the financed company (the ‘equity kicker’), that allows investors to benefit from the appreciation in value of the financed company’s capital.
In private equity transactions, mezzanine financing is useful for satisfying the demands of institutional investors and shareholders to maximise the efficiency of financial leverage without later resorting to senior debt. The flexibility of the product makes it particularly attractive for leveraged buy-out transactions, industrial or financial reorganisations.
Speculative funds with coupon
Hedge Invest Total Return, the fund of hedge funds with annual distributions of a portion of the proceeds, is one of the most interesting new products this year. The objective is to annually distribute the share of performance that exceeds the Italian inflation rate to allow investors to benefit from both the revaluation of the capital that remains allocated in the fund and the liquidity corresponding to the portion of the accrued capital gains using the annual coupon without needing to make a redemption request.