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REGULATORY KEY POINTS

Nunzia Melaccio

An interview with Nunzia Melaccio, Associate at Gentili & Partners

Nunzia Melaccio comments on the current situation in Italy where AIFM has still not been implemented. Nevertheless, she explains how this current transition time period is offering market opportunities in Italy.

Nunzia, could you give us an overview of the Italian market for alternative investments post 2008 ?

Similar to France and Germany, the number of managers in alternative investments has decreased significantly. Italy was the first country in Europe to create regulated funds for alternative investments. Back in 2001, the local management companies (the SgRs) launched progressively dedicated funds. The funds of funds, in particular, developed rapidly. This fund of hedge fund sector is still active. The managers that have survived the liquidity crisis and the large outflows since post crisis, are stronger than before. Funds of hedge funds have also added long only fund selection and from 2007, the Alternative UCITS sector developed rapidly Italy has good managers with experience and solid background.

What are the perspectives of distribution for non Italian managers?

Marketing to institutional investors of non UCITS funds (i.e. Alternative funds) is possible under AIFM directive and the process takes more or less one month. Marketing to retail investors is also possible in compliance with the relevant provision of the Italian Consolidated Law; due to the range of requirements to be verified under a regulatory Point of view, the process to be authorised needs the support of local advisors and takes not less than four months.

For Alternative UCITS, the process of registering an existing UCITS fund in Italy is rapid, it takes usually 2 weeks. UCITS V directive should open new opportunities for foreign managers. Investment funds registered in Luxembourg or in the UK will be directly authorized for distribution to domestic clients. We are supporting our non italian clients to create distribution strategies in Italy both directly (i.e. Setting a branch) and with Italian distributors. In that perspective, I think that the timing is right for foreign manager to enter strong alliances with distributors as well as to expand their structure in Italy without having to create a local SGR.

Perspectives from Kairos Investment Management, the leading Italian independent fund manager.

Mario Unali, Senior analyst at Kairos Investment Management Limited, explains how Kairos has navigated through the years to remain one of the key independent fund managers in Italy. Kairos runs multi-manager, long/short and long only funds

Mario, could you remind us about the history of your firm? When was Kairos founded ?

Kairos was founded in 1999 as a partnership of the employees with a vision to create an independent fund management business. The company started with the equivalent of 50 million Euros and has grown to 6 billion Euros as of today. The group is still majority-owned by its employees and Julius Baer has recently acquired a 20% stake.

Italy was the leading country in the creation of regulated local alternative funds. Kairos was a first mover and swiftly became a key player by launching single-manager strategies as well as fund of funds, in both an offshore and a regulated format.

Since 1999 the managers have been based in London and the New York office was soon after developed to help the fund selection process in the US.

Can you tell us how Kairos has survived 2008 and what lessons were learned?

The Italian alternative investment sector was dramatically hit with massive redemptions by investors who did not trust hedge funds anymore.

Despite strong relative performance of around -5% we faced substantial redemptions, especially because our fund of hedge funds offered monthly liquidity and we were often used as liquidity providers.

We believe that our independence and our conservative way to manage liquidity were the most valuable factors that allowed us to survive those difficult times.

Independence was key as we kept a close relationship with our clients and we were more flexible than bigger organisations when reacting to the crisis. Liquidity has always been the single most important investment driver: even before 2008 we never invested in non-liquid assets and did not have to gate any of our funds during the crisis. Another important aspect is that we were able to retain our team while navigating extremely turbulent times.

In 2009 we were once again the first mover in Europe when we launched the first UCITS-compliant multimanager vehicle.

What is your distribution strategy in Europe?

We have always had our own sales and client relationship professionals within the firm. Last year, we entered into an agreement with Julius Baer, an alliance which contributes to develop our international reach. This deal also allows us to be better distributed across continental Europe, while pushing for new business in Asia and in the UK as well.

Mario, what is your market outlook for 2015?

We still value investing in equities despite relatively high valuations. We keep a cautious stance in terms of market exposure, but remain fully invested in our portfolios. The sudden volatility spikes around mid- October and December were a warning sign, and even if most markets have since then recovered, we remain vigilant about short term corrections. Investments in Europe look particularly attractive at this stage.

We think that fixed income does not offer a good risk-return profile anymore, and we are not extremely positive on credit either. However, in all asset classes we believe in active management as a way to extract alpha for our clients.