Fitch: Italy Investment Manager Outflows Mirror Widening Spreads

Link to Fitch Ratings' Report(s): Italian Investment Manager Dashboard July 2018

https://www.fitchratings.com/site/re/10039157

Italian investment managers' (IMs) EUR6.9 billion net outflows in May highlight the sector's sensitivity to sudden changes in the country's operating environment, Fitch Ratings says. The outflows coincided with material widening in Italian sovereign spreads and were the largest in a month since the height of Italy's sovereign debt crisis in 2011.

The outflows were mostly from open-ended funds and institutional mandates, according to industry group Assogestioni. Open-ended bond funds were particularly affected (EUR3.6 billion outflows), reflecting the impact of sovereign spread widening on fixed-income funds, which are mostly long-only.

IMs with predominantly institutional distribution, such as Amundi and Anima, performed worse than those relying more on financial advisor distribution, such as Azimut, Fideuram and Gruppo Generali. Distribution through financial advisors tends to be less affected by sudden market shifts due to its relationship-based nature.

The impact of Italian spread widening on the IMs we rate is significantly mitigated by their geographical diversification, except for Azimut (BBB/Stable), where Italy represents about 75% of assets under management, by client domicile. Its performance fees are likely to have been affected, but it has a high proportion of relatively stable management fees, which supports its cash flow leverage.

Europe's largest IM, Amundi (A+/Stable), added significant Italian exposure with its acquisition of Pioneer from Italian bank UniCredit in 2016, but Italy still represented only 12% of its assets under management, by client domicile, at end-March 2018.

Further Italian sovereign bond spread volatility could continue to affect net flows in fixed-income products, but net outflows are unlikely to be large enough to outweigh inflows in other asset classes. Cumulative net flows for 2018 are still positive, supporting growth and the sector's generally healthy profitability, and overall net outflows slowed to EUR0.6 billion in June, although bond funds net outflows remained close to May's level.