“The Italian market is one of the most popular markets for asset managers wishing to distribute their products on a cross-border basis”, Yves Tambour said.
ONE OF THE TOP-EUROPEAN CROSS-BORDER FUND DISTRIBUTION MARKETS AT A GLANCE
Each edition of Reaching Investors highlights a distribution market. This second edition focuses on the Italian market. Italy is one of the largest markets in Europe. From the perspective of the cross-border distribution of foreign funds, the Italian market is one of the most popular markets for asset managers wishing to distribute their products on a cross-border basis. A significant number of Italian asset managers have chosen Luxembourg as their investment fund domicile (so called “round trips”). In this respect, Italy is similar to other markets such as France and Switzerland.
A major market for cross-border funds
Italy has 61 million citizens with an average life expectancy of 82 years. A total of € 1,867 bn of assets are invested in Italian funds and discretionary mandates, of which € 848 bn are invested in funds (mostly open-ended public funds). Of the € 848 bn invested in funds, 65% is raised by asset managers of Italian origin:
- 26% in funds domiciled in Italy managed by asset managers of Italian origin
- 39% in foreign domciled funds, mostly Luxembourg funds,managed by asset managers of Italian origin
Asset managers of non-Italian origin account for the remaining 35% of the assets raised by funds in Italy, of which 34% are raised on a cross-border basis (again, mainly Luxembourg funds).
7,019 open-ended sub-funds (1,309 umbrellas) are distributed in Italy, of which 6,082 foreign sub-funds (1,117 umbrellas) are distributed on a cross-border basis.
Finally: 152 asset managers are supervised by the Italian regulator, the CONSOB.
The Italian market is definitively considered as a prime location for distributing funds on a cross-border basis.
Not the cheapest …
Some of the regulatory requirements applicable to cross-border fund distribution in Italy are costly, and therefore must be taken into consideration when planning to enter the Italian market.
With respect to operational and regulatory costs, the Italian market is one of the most expensive in the Eurozone – but these costs may be compensated by the high fund raising potential of the market.
An asset manager wishing to distribute foreign funds on a crossborder basis into Italy needs to appoint local agents in order to provide local facilities to Italian investors, in particular a paying agent and an intermediary (often the same entity). The paying agent is responsible for managing the whole subscription and redemption process. It must be considered a sub-transfer agent. The cost may be significant.
In addition, there must be a placing agent between the distribution network and the paying agent. The placing agent will place subscriptions and redemptions orders with the paying agent.
The structure of the Italian market makes the role of placing agent strategic: each paying agent provides full B2B service only for the placing agents which are connected to their own network. It is therefore critical to ensure that each distribution channel is connected to a paying agent through a placing agent in network. The choice of an Italian B2B/B2C platform may be judicious.
The Italian stock exchange (Borsa Italiana) has also opened a market segment dedicated to the cross-border distribution of investment funds in Italy. Cross-border funds are listed in the specific market segment and may be subscribed to and redeemed by anyone with access to the stock exchange. However, a certain number of constraints limit the success of this initiative in the market. The major constraint is probably the remuneration model of financial intermediaries because the interests of the main distributors, bank networks, IFA… are not aligned.
…But generally worth it
The Italian market is ranked in the top-5 European markets: it has high potential and there is a significant level of fund raising activity.
However, Italy is a challenging cross-border distribution market to master. The operational and regulatory aspects generate costs, a significant portion of which are fixed costs which need to be taken into consideration in order to develop a successful business model for the Italian market.