Author: Tommaso Corcos, CEO, Eurizon
7 Feb 2018
The asset management industry is evolving rapidly, driven by regulatory and technological developments. What’s more, MiFID II is set to push producers and distributors to foster stronger relationships and make it increasingly important to provide financial training and education. Technological innovation is also encouraging change in the asset management industry.
New processes and services are being developed with the aim of making the customer more aware of their own expectations and choices. In this changing environment, Eurizon is strongly committed to maintaining its leading role by embracing a service model focused on its customers’ needs.
Eurizon Capital is a high standing player in the European asset management industry, offering a wide range of products that stand out thanks to a unique management philosophy, style and risk/reward profile. It aims to create value through performance and innovation, always focusing on clients’ needs.
The quality of service is enriched by the company’s expertise in fixed-income, multi-asset and quantitative management. Eurizon’s commitment to offering high-quality services has become one of its distinctive traits. However, Eurizon’s past success has not made it complacent with its offerings, and so the company is also well-versed in developing new types of investment instruments.
The company strongly believes that measurable social and environmental returns accompany financial ones. Eurizon became a signatory of the UN’s Principles of Responsible Investment (PRI) in 2014, and was one of the first Italian subscribers at this time. It is also ranked among Europe’s top 25 most responsible investment asset managers by UK charity Share Action.
If companies and institutional investors played a more important role than just giving a better return, this could mean a better world for everyone
Becoming a PRI signatory was the natural next step on a path that began in 1996 when Eurizon became the first Italian asset management company to offer ethical funds. Over time, these guidelines have become an integral part of the company’s sustainable investment process, and were extended to all assets under management in March 2017.
“The ethical funds were very important for our company, but we thought we could do more in these specific areas so we decided to integrate environmental, social and corporate governance (ESG) into our investment policy,” explained Tommaso Corcos, CEO of Eurizon.
“I think this is an important step towards an interpretation of the role of an asset manager as not only an investment solution provider; we’d like to be a player with a more important role. That means we are responsible for ESG issues. Many retail investors, particularly younger generations, have a real interest in these topics.”
Eurizon has strengthened its role as a responsible investor by upholding stewardship principles. “We believe it is fundamental for us to assume the role of responsible and active investor by promoting a constructive dialogue with the companies included in the portfolios, in the interest of our customers,” said Corcos.
In the investment process, the company escalates stocks causing concern by limiting investment possibilities and through constructive engagement such as attending and voting at shareholder meetings. Another negative review 18 months later would lead to the investment’s termination if necessary. In the first nine months of 2017, Eurizon undertook 535 engagements, 20 percent of which exclusively concerned ESG topics.
“This is certainly positive for savers and retail investors, but even more than that, it’s important for ordinary people: if companies and institutional investors played a more important role than just giving a better return, this could mean a better world for everyone,” said Corcos.
Supporting the real economy
Eurizon is committed to sustaining economic development. The company was one of the main supporters of the Piani Individuali di Risparmio (PIR), a financial innovation introduced to Italy in 2017. Eurizon aims to satisfy the differing needs of all its investors by creating various PIR compliant mutual funds, which differ in terms of risk profile with a growing equity component.
This new investment instrument allows savers to benefit from a tax exemption (for investments up to €30,000 per annum, for a maximum of €150,000 over five years). It also satisfies the requirement for 70 percent of investments to be in Italian issuers and to focus on SMEs, thus helping to support the real economy.
Eurizon aims to satisfy the differing needs of all its investors by creating various PIR compliant mutual funds, which differ in terms of risk profile with a growing equity component
At the same time, Eurizon’s PIR maximises diversification, making full use of the margins granted by the free portion of the portfolio, as well as potential access to different geographical and currency asset classes. The PIR seeks to channel family savings into the Italian production system, particularly SMEs, and promote methods of financing other than bank credit.
“I believe that the PIR is an extraordinary instrument which can benefit both savers and the Italian real economy by providing a stable and lasting channel of resources to businesses, particularly small and medium-sized enterprises,” explained Corcos.
Adapting to the new regulatory environment will bring challenges, but Corcos is confident in how Eurizon will respond to this disruptive time: “I think that there is a gap in terms of financing long-term projects that can be filled by the asset management industry. I’m thinking about infrastructure projects, real estate development and non-performing loan issues, coming after years of financial crisis. This is something that asset management companies can exploit to improve their ability to offer more products, mostly to institutional investors.”
Traditionally, alternative credit assets such as leveraged loans have been arranged and executed by banks. Institutional investors have mainly been exposed to alternative credit assets via securitised formats. Banks currently face two major challenges: maturity transformation and liquidity transformation.
They need to lend long term but, because their depositors want to have the flexibility to access their deposits, most of their deposits are short term. Meanwhile, a large percentage of long-term money in the economy rests with institutional investors (pension funds, saving funds and insurance companies). They are on the lookout for high yield and often have a long-term liability profile.
Investors seek exposure to loans in various ways, often directly but also via banks, asset managers or fintech players that securitise their loan portfolios. Over the last few years, Eurizon has been developing new investment solutions, such as a portfolio investing in securitised debt instruments through a disciplined and diversified management approach.
Eurizon also offers an investment solution to build a well-balanced portfolio in terms of the number of borrowers, geographical focus, sectors, seniority and credit worthiness within the investment objective. This is a fund specialised in European leveraged loans that seeks to provide shareholders with superior risk-adjusted returns through the acquisition of a diversified portfolio of predominantly European Senior Loans of non-investment grade.
In the near future, the company will start collecting subscriptions for a closed-end fund, which offers a long-term return with an emphasis on current income by primarily investing in a broad range of real-estate-related debt investments. This set of new options means that, despite the unfamiliar financial landscape Eurizon faces, the company will continue to surpass the expectations of its clients.