If the Intesa Sanpaolo-Generali operation were ever to go through, the savings hub made up of Eurizon Capital SGR (Intesa Sanpaolo group) and Generali Investment would become the absolute leader on the Italian market, but already today Eurizon Capital - with around 285 billion of managed assets and a market share of 15% (according to data from the Assogestioni Map of December 2016) – is a leading excellence of the Italian financial industry. Tommaso Corcos, who has been managing director and general manager of Eurizon Capital since 2014 and who since last year has also been president of Assogestioni (the Confindustria of mutual funds), is one of the main lords of Italian asset management.
But, however the Intesa-Generali deal goes, Corcos knows very well that for Eurizon Capital, for the world of asset management and more generally for the Italian financial industry, 2017 will be a special year because, in the last days of 2016, Parliament approved the budget law proposed by the government which also introduces the PIR in Italy, the individual savings plans which exempt from taxation the profits deriving from financial investments held for at least 5 years and which aim to direct savings towards Italian companies and above all towards small and medium ones. If the PIRs take off, it will be the turning point for savers, fund managers, small and medium-sized companies and the Stock Exchange, with an estimated collection of new capital between 16 and 18 billion euros in 5 years. FIRSTonline talked about all these news with Tommaso Corcos. Here is his interview.
Doctor Corcos, the arrival of PIRs is the novelty of 2017 for the financial system and for the world of Italian savings: what were the first reactions of the market at the beginning of the year?
“The arrival of the PIRs crowns a battle waged by Assogestioni for many years and all of us fund managers are very happy that the Government has achieved its objective which can lend a great hand to the Italian economy. We are ready to do our part, but already in the first weeks of the year we perceive the interest that savers show towards the Pir both because after 5 years it exempts from taxation all gains (capital gains and dividends), even in inheritances and in donations, both because the sums invested are always redeemable and finally because the funds dedicated to PIRs invest in a predominantly Italian but diversified financial market which is there for all to see every day".
At least a dozen companies have already announced the offer of new financial products dedicated to PIRs, when will Eurizon Capital actually take the field?
“We are burning ahead and will be ready to launch our new financial products on the market by the end of February”.
What type of product will Eurizon Capital launch for Individual Savings Plans?
“We will launch three funds for the PIR built on three different saver risk profiles: a conservative fund made up of 30% equity investments and 70% bond investments; a moderate fund equally divided between stock and bond investments; a dynamic fund made up of 70% equity investments and 30% bond investments”.
It is thought that, given the importance of individual investment and the five-year bond, it is above all affluent customers who approach the Pir but can we already identify an identikit of the typical saver of the Pir?
“Yes, considering that up to 30 euros a year can be invested once in a lifetime in PIRs for a total of 150 euros in 5 years, it is logical to expect that the new financial products will mainly attract affluent or even private customers, that is, the one that has total assets exceeding 500 thousand euros, but given the great flexibility of the Pir, which can also be accessed with initial investments of the order of 500 euros, we think that its catchment area does not only concern families more affluent but more generally families and all retail customers”.
Will the PIRs only affect retail customers or also institutional investors?
“PIRs can only be registered in the name of natural persons, therefore they are dedicated to retail customers, however the law also provides tax breaks for pension funds and pension funds that invest in Italian companies - up to 5% of their assets - and that they therefore have a great opportunity ahead of them which, I believe, they will not miss".
Have you estimated how many new funds the PIRs will be able to raise?
“Between 16 and 18 billion euros in 5 years: around ten from retail customers and between 6 and 8 billion from institutional investors”.
By the way, can PIRs also have a social security value and, in this sense, compete with pension funds?
“PIR and pension funds are two long-term investment instruments, which respond to objectives that are not necessarily alternative but which are different and differ essentially on this: individual payments to pension funds (as well as life insurance policies) are tax deductible while PIRs are not but offer a different tax benefit, namely the exemption – after a 5-year holding period – from taxation of capital income and other income of a financial nature deriving from investments made in the PIR itself”.
What are the advantages and disadvantages for a saver of a single payment or a payment in installments for the Pir?
“The logic is like that of a Pac, that is, an accumulation plan. If you pay 30 each year in a PIR instead of 150 in one go, you can smooth out the negative peaks of the markets and, if you resort to monthly payments, you can better manage trends. In other words, the PIR offers the possibility of using all the experience and efficiency of a common fund”.
Some say that, together with the undoubted tax advantages, PIRs present three risks for savers: they are illiquid investments, they are concentrated on the Italian market - with all the uncertainties of the country system and the impossibility of diversifying the investment – and – above all – they are expensive, because the funds are preparing to present management fees, benchmark fees and in some cases even very steep entry fees for PIRs. How does Eurizon Capital respond to these criticisms?
“Allow me to answer in order, point by point. Let's start with the liquidity and liquidity of investments in financial products dedicated to PIRs. A saver can enter and leave an Individual Savings Plan whenever he wants and therefore his investment is always liquid and liquidable, as long as he knows that if he stays for 5 years he will enjoy the tax benefits which he will lose if he leaves earlier. Second: are the funds linked to the PIRs not very diversified and too exposed to Italy risk? Not at all".
Doctor Corcos, does the law say or not that PIRs must invest mainly in Italian companies?
“Of course he says so, but this aspect must be understood correctly. If I have to invest 70% in companies resident or organized in Italy, it means that the fund has the space to invest the remaining 30% also abroad and is therefore more diversified than a normal mutual fund specialized in Italy. Secondly, the 70% that must be invested in Italy can be further diversified, because 30% of this share must be destined for small and medium-sized enterprises and the manager therefore has a wide range of possibilities ahead of him also in the Italian market and he can also choose whether to invest in shares or bonds. Naturally, a good manager is one who knows how to do stock picking, and allow me to recall the excellent track record of our already operational fund specializing in small and medium-sized Italian companies and that the PIRs arrive in a market phase in which Piazza Affari was underweight compared to other geographical areas throughout 2016. Currently, in fact, the shares of Italian companies listed on the Stock Exchange are among the most interesting because on average they have lower prices than other stock markets together with expectations of an improving earnings trend for 2017”.
The problem of the costs of the PIRs remains, often considered high and not very transparent. How will Eurizon regulate itself?
“Precisely because we are aware that the PIRs are an extraordinary opportunity and we want to encourage them to take off in every possible way, the management commissions that Eurizon Capital will apply to the three new funds it is about to launch will be in line with or even lower than the mutual funds of equivalent risk profile. That is: 1,4% a year for the conservative fund; 1,5% for the moderate one and 1,6% for the more dynamic one. As for initial commissions, we will leave the placers free to apply them or not but, in any case, they cannot exceed 1,5%. Finally, performance fees can reach up to 10% if they exceed the benchmark”.
And 10% doesn't seem like a lot?
“This is what happens in mutual funds and has its own flawless logic. If I apply the performance fee, I encourage the manager to beat the benchmark which is not an arbitrary threshold but reflects the market trend. And the benefits fall on the investor, but the 10% should not be misunderstood, because this commission does not apply to the entire performance but only to that which exceeds the reference parameter. Let me explain with an example assuming that the benchmark coincides with the index of the Italian Stock Exchange: if the index of the Italian Stock Exchange earns 10% and my fund 11%, the performance fee of 10% applies only to the 1%".
Of course, Dr. Corcos, but I don't know if on a general level - and here I am addressing the president of Assogestioni - the fund managers are aware that the PIRs represent a unique opportunity for them too and that ruining it with too high commissions would be a sensational own goal . What do you think?
“The asset management industry is perfectly aware of the long-sought-after opportunity that is presenting itself to it this year and will certainly not waste it with out-of-line costs to customers. No one is foolish enough to ruin everything by demanding the moon. And I'm sure it won't happen."
