The recent investment mandate awarded to a hedge fund company by Italian asset management firm Fideuram Investimenti has given the term “sub-advisory” a new broader meaning.
From October this year, GLG Partners, the London-based hedge fund firm will run, using full powers granted by Ucits III, three different equity mandates, US, Europe and emerging markets equity on behalf of the Italian company for a total of $3bn (E2.1bn).
But Tommaso Corcos, chief executive officer at Fideuram Investimenti, which serves the largest financial advisers or promotori networks in Italy with over 4500 agents, is keen to emphasise that this is much more than a traditional sub-advisory contract.
“This is a technical partnership which gives us the possibility to gain access to a highly valued team,” he says. Through this agreement the Italian firm has ensured that the fund manager, or a senior partner from GLG, will always sit in its own investment committee, bringing experience, professionalism and potentially different views on markets. “It is as if metaphorically we had hired a new very high level manager,” he says.
These sub-advised products will be employed as underlying funds in Fideuram Investimenti’s revamped range of GPFs (gestioni patrimoniali in fondi), which are the Italian discretional and personalised investment portfolios for high net worth investors.
The recent mandates are part of a broader series of investments that Fideuram Investimenti is making in these products, bucking the recent trend in the domestic industry which has seen many Italian banks dismantle the GPFs in favour of funds of funds type of products, in an attempt to bypass the transparency constraints imposed by the European directive MiFid, which also affect the retrocessions obtained from third-party managers employed in GPFs.
Multi-brand products have also increased in the GPFs, which amount to E11bn of the total E30bn managed by Fideuram Investimenti. Including the three new mandates to GLG, over 50 per cent of a typical GPF balanced portfolio will now be managed by third-party managers, explains Mr Corcos.
GLG will contribute to the right asset allocation strategy within the GPF product itself, although the final decision lies with the Italian firm. GLG have all interest in getting the asset allocation right as if the GPF product goes well, that means that sub-advised assets will also grow, says Mr Corcos.
Mr Corcos sees the strong approach to trading in which GLG has a strong ability to generate added value, in addition to stock picking, as an important strength for the GPFs products.
Thanks to the use of financial derivative instruments that Ucits III has allowed in retail investment products, the distance between a traditional long only firm and a hedge fund has significantly shortened and products originally created as hedge funds are being transformed in Ucits III products targeting retail clients.
This is an opportunity for hedge funds but also a challenge. This is why the GLG Fideuram Investimenti technical partnership is necessarily a two way flow of information, says Mr Corcos. Fideuram Investimenti is an asset manager which traditionally has a close contact with the private bankers and the end clients, he says. Hedge funds such GLG, on the other hand are pure managers, whose ability to service the end clients and provide services and information is a bit “more subdued”. But symbiosis between the two firms will produce very good results, he says.
GLG Partners has also been managing for the Italian firm a E140m investment mandate for a high volatility flexible growth product since last October.
Fideuram Investimenti also employs Goldman Sachs Asset Management (GSAM) to sub-advise a flexible dynamic product for a total of E700m. The two firms are currently reviewing the structure of this product that has been managed by GSAM for the past 3 years. Mr Corcos reveals that the GSAM’s Core Flex 135/35 range will be employed in the fund, which will further improve the quality of stock picking and market timing.
Towards more niche asset classes
The increased client demand and the significant amount of assets gathered in some more niche asset classes is driving SEB Wealth Management to consider the opportunity to sub-advise specialist mandates. These can be single country equity funds or sub-sectors of fixed income, such as emerging market debt local currency, predicts Magnus Björkman, head of partnership management at SEB Wealth Management (WM).
“Let’s take India and China, for example, where we are currently offering third-party funds. Clearly, investing in these regions is no longer just a market timing bet. These will be long term assets in any client portfolio and SEB wants to offer and sponsor funds for which the demand is likely to be secular or long term,” he says.
