17 September 2012
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Oreste Auleta, head of wrapping and product management at Italy’s Eurizon Capital, says that fund selection in current markets is driven by a more rigorous due diligence on ability to replicate performance.
Oreste Auleta, head of wrapping and product management at Italy’s Eurizon Capital, says that fund selection in current markets is driven by a more rigorous due diligence on ability to replicate performance.
Replicability, consistency and transparency. In more detail, the possibility to replicate performances, consistency of investment processes and transparency of portfolio management activities.
In current market conditions these key attributes drive the fund selection process, and are the top priorities for Oreste Auleta, head of wrapping and product management at Eurizon Capital, the asset management arm of Italy's Intesa Sanpaolo banking group.
Auleta (pictured) speaks at a peculiar time for the Italian asset management industry. Even if Italians have historically shared a favourable attitude towards the European Union first, and the euro second, the debt crisis in the eurozone is challenging sentiment.
Heart of the problem
"In a way we feel at the heart of the problem, or really close to it," says Auleta. "The crisis has pushed Italy to adopt an agenda of deep reforms and has accelerated steps and changes that otherwise would have required years to happen. Along with a strong commitment on the growth agenda, this should restore a better market sentiment.
"Italy can definitively exit from this crisis together with the other European partners. We are optimistic. Today we are laying the foundations for building a stronger and more robust European Union."
The debt crisis has affected investor appetite and their preference for certain products, impacting in turn the fund selection process.
"Needless to say, uncertainty and slow growth environment in peripheral European countries are producing a lot of market volatility," Auleta says.
"To adapt, we are giving more space to managers able to exploit specific opportunities and provide higher growth of capital and dividends, while keeping a tactical approach to the changing market conditions."
According to Auleta, a flexible and pragmatic approach is required to navigate the current market environment and to avoid excessive risk taking.
Eurizon's due diligence process has a specific risk management component, which acts as a centralised function among the organisational structure, fully independent from the investment team in terms of reporting line but completely integrated in functional terms into the portfolio management process.
In addition to the analysis of markets and portfolio risk control, the company has also implemented a dedicated operational due diligence process covering the independence in net asset value calculation and the independence of custodian and prime broker.
"On portfolio management risk, we prefer managers with real-time understanding of their risk biases and volatility sources. It is a must to find evidence of the investment philosophy from an ex-ante risk attribution report," Auleta says.
He gives an example. If an equity portfolio manager is able to generate alpha performances through stock selection, Auleta expects to find most of the ex-ante risk arising from specific stock picking rather than industry, styles and countries.
