For a private bank like UniCredit, which has grown by acquisition from its long-standing Italian roots to become a pan-European player, a well balanced management of cultural differences is vital for the smooth functioning of all parts of its business, including investment strategy.
“There are undeniable cultural differences in Europe, which need to be respected, but there are certain principles, when it comes to my role, on which I am not willing to accept any compromise,” states Manuela D’Onofrio, head of global investment strategy, private banking division at UniCredit.
The pillars that support a “healthy” asset management strategy relate to risk management, the importance of having a global vision of the economy and understanding its impact on financial markets.
But the strong home bias in the investment choices of clients in Germany and Austria means that some centrally-determined principles in portfolio construction need to be necessarily conceded to the regions. Together with Poland, the two German speaking countries are the group’s main operating markets, following UniCredit’s acquisition of HVB Group in Germany and Austria and Bank Pekao in Poland.
One recent example is the different attitude towards the European sovereign debt crisis, where Ms D’Onofrio decided to give autonomy to local investment directors, allowing them to continue investing clients’ fixed income portfolios mainly in German government bonds. This was despite the group’s monthly investment committee recommending a strong overweight of Italian government bonds, in the fixed income segment. “This is mainly a missed opportunity than a risk for the client. Our German clients, especially, have a German-centric vision of their investments,” reflects Ms D’Onofrio.
Similarly, since the creation of UniCredit Private Banking in 2003 in Italy, a considerable amount of time has been spent explaining to wealthy Italian investors the importance of diversifying away from their home market, she says. This would allow them to take advantage of opportunities in other parts of the world and more importantly, help avoid a concentration risk which was not adequately rewarded.
“Since the beginning of last year, we made a very strong call on emerging markets, for both fixed income and equity,” reveals Ms D’Onofrio. “While in Italy, our clients have followed us, although with some uncertainty, it has been much more difficult to propose the same investment case to Austria and Germany. Clients still do not understand that the world has changed and that so called ‘emerging markets’ have in fact already emerged.”
In January this year, the decision to go back to a neutral position on emerging markets was taken in light of the necessary restrictive monetary policies that central banks in these countries will need to implement to contain inflation, and because of expensive valuations compared to the US and, in particular, Europe.
Especially since the crisis, the focus is on the absolute risk and not the risk against the benchmark, says Ms D’Onofrio. “When we believe markets could involve risk of important losses for clients’ portfolios, we have not been afraid to dramatically reduce financial risks,” she states.
While in 2008-2009, it was possible to get reasonable returns of 5-6 per cent in corporate and high yield bonds, this year, without a significant equity exposure, it will be very difficult to achieve these kinds of returns.
After the financial crisis, the risk profile of all clients has reduced remarkably.
“Investors have a very underweight equity exposure compared to what we recommend, according to the different risk profiles, although they have responded very well to our strong positive call on corporate and high yield, both European and international,” she says. “This year, we have decided to have an important overweight on US equity, in our equity portfolio.”
The key drivers for US growth are flexible monetary and fiscal policies and growth of corporate earnings, due to the rising consumer demand. This should also lead to a reduction of the unemployment rawte, she believes.
Giving advice to clients in a way that leaves it open to interpretation is something Ms D’Onofrio decisively rejects. “We all know that when I say this is the year of the North American equity market, there are many unknowns that could prove me wrong. But if I had to list all the potential negative factors, I would never be able to give any advice to clients.”
