The massive Italian mutual fund market is opening to foreign fund managers, say mutual fund industry commentators FERI FMI in a recently published profile of the mutual fund market in Italy.
FERI FMI (Feri) says the €589 billion Italian market currently vies with Germany for second position after France in the European asset league table. But it warns this position is largely a relic of historical buying patterns. In recent years, despite a background of buoyant stock markets, Italian investors have largely steered clear of domestic fund products.
With its shift towards open architecture and distrust of domestic product offerings, Italy offers the richest pickings in Europe for the foreign fund management groups, says Feri, and is currently the largest market for cross border fund sales.
The contrast in fortunes is marked, says Feri. Foreign fund sales in Italy amounted to €12.5 billion in 2005 whilst the outflow from domestic funds for the same period was -€11.7 billion. By the first quarter of 06, the figures were even more staggering with the foreign groups achieving inflows of €7.7 billion against a net redemption total of -€4.3 billion for domestic funds.
Changes are on the horizon, however, adds Feri. The Italian Government’s plans for alterations to tax treatment of fund investment in 2007 are designed to remove the fiscal disadvantages to domestic providers. So will this impact on the current ‘dolce vita’ being enjoyed by foreign fund marketers?
Bella Ferreira, the editor of the market study, entitled “Fund Market Profile: ITALY,” thinks not. “Although the Italian preference is usually to buy local produce wherever possible, buying investment products is not the same proposition as making minestrone”, she says. “Since the nineties, when investors bought mutual funds from Italian banks in staggering quantities only to get their fingers badly burned in the dot.com crash, they have only trusted their local bank managers to sell them products managed by foreign experts. Perhaps the most interesting thing to watch out for in the next twelve months will be whether the planned fiscal reforms do motivate the domestic banks to develop their own products or whether they feel that they will achieve better revenues by distributing foreign products. Essentially, Italy has become a market of fund buyers and every cross-border manager is anxious to get a piece of the action.”
So how does FERI envisage developments in the Italian market panning out over the next five years? One of the most interesting features of the in-depth FERI FMI fund market studies is that they include projections as to the likely growth of the market in focus. In Italy, FERI predicts that the opportunity for the foreign groups remains huge. Foreign market share is currently 11.9% and FERI’s projections indicate that foreign assets will continue to grow at an average annual rate of 20% over the next five years, resulting in a market share of 21.7% by 2011.
Ferreira predicts that the growth in the domestic industry will be minimal, with a comprehensive shift towards packaged products where the underlying funds will be essentially foreign third-party. “If fiscal issues were the primary concern for Italian investors, or the impending fund taxation changes were deliberately punitive towards the foreign groups, then they might have had the effect of tilting activity back towards domestic funds,” she says. “But given that this simply isn’t the case, I would anticipate that a level playing field will create the perfect arena for the foreign fund groups to continue building market share in Italy.”
The newly published FERI FMI Fund Market Profile: Italy can be obtained from FERI FMI on +44 (0)20 7940 0010 or by emailing Rodney.willliams@feri-fmi.com.