Asset Management

The strategic guidelines of financial management

The Compagnia di San Paolo adopted years ago a model of management of its financial assets inspired to the traditional one adopted by similar Anglo-Saxon institutions. Since a signification portion of the assets is invested in one single stock, Intesa Sanpaolo, the rest is managed according to various principles: the portfolio is diversified and exposed to risk factors that are as independent as possible from those influencing said stock, while the management is delegated and subject to the supervision of an independent advisor.
The model of "diversified management" that the Compagnia adopts for the component that is complementary to its historical equity investment is the same adopted by the largest foundations in the world. Compared to the "equity holding" model, adopted by some foundations in Italy, it is decidedly less risky: a less concentrated portfolio results in yields that are at times more limited but more stable over time. This enables the foundation to concentrate on strategic issues: income and expenditure objectives, degree of diversification and markets to be covered, monitoring of results and risk management.
The principles and the objectives regulating the financial management are expressed in the "Rules on asset management procedures and criteria", as laid down in article 5 of the Articles of Association. Both are of a strategic nature and intend to define the profile of the action of the Compagnia on a long-term period, as is its vocation, to ensure continuity as the make-up of its governing bodies changes.
In the document approved in 2001, the declared financial objective is the generation of resources for institutional activities and the protection of the assets' real value, hence the managed portfolio - which is separated from strategic equity investments - is built on a time-frame of at least four years.
The "Implementation Document" defines, instead, the responsibilities of the various bodies and sectors, as well as the timing and procedures of assessment and auditing for the four-year term. The one adopted in the course of the closing mandate is the result of a learning process started therefore almost seven years ago. It qualifies in greater detail the expenditure policy, which is an increasing figure year after year based on the inflation rate, between 2.5 and 1.5 % of the market value of all the assets of the Compagnia. This allows for the monitoring of surplus or lack of expenditure with respect to the actual wealth of the foundation. Therefore it quantifies the financial objective over four years, at a value that is 3% higher than the inflation rate, calculated on the average market value of assets: this enables an average expenditure of 2%, the protection of the real value of total assets, and their increase to benefit future generations. It also defines the role of the independent advisor (in the past few years it was Cambridge Associates), operating in cooperation with the staff and with Fondaco SGR to define the investment policy, in the selection of managers and the implementation of an investment programme in private equity and venture capital.
The strategic allocation of the managed portfolio illustrated in the graph below was defined in the last "Implementation Document" (or Investment Policy) of July 2005.
Over the course of 2007 the Managing Committee was submitted the proposals drawn up by the staff and the Cambridge Associates Advisor, to introduce real assets and financial leverage and to better define the exposure to risk factors and yields, thus stressing the distinction between a management that is strongly influenced by individual market factors (rates, stocks, etc.) that tend towards a passive management, and the more independent management strategies of traditional markets.

Asset categories Managed portfolio % Benchmark
Monetary euro (*) 15.0% JPM 3 Months TR Index
Nominal and real bonds 45.0% Citigroup EMU Government Bond Index
European equities 10.0% MSCI Europe Total Return Index
Global equities 10.0% MSCI World Total Return Index
Absolute return 10.0% JPM 3 Months TR Index + 3%
Non-marketable alternatives 10.0% MSCI World Total Return Index + 4%
(*) tax credits are included in the monetary allocation

The managed portfolio, which is complementary to the strategic portfolio and consists of the equity in Intesa Sanpaolo, contributed over time to inspiring and shaping an international opening of the financial management activity, with an increase in the stability and diversification of total assets,

The financial management is inspired to principles that result from the institution's tradition and the international and independent contribution of the advisor. The objectives and limitations of the financial management are set by the law and the Articles of Association, but also aim at preserving the privileged nature of the foundation as a long-term investor. The long term scenario is part of the history of the Compagnia and is the reason of its success in investment operations.
The independence and autonomy of the financial management activity, as required by law, are aimed at the generation of the resources available for the running of the foundation only: an open, international and global approach that has fostered an increase in income diversification and a financial vision, thus laying the foundations for the growth, or at least the stability over time, of grant allocations.
The management activity is fully delegated to external subjects, selected by the independent advisor, with the contribution of the staff building on skills and professionalism progressively concentrated in the dedicated company Fondaco Sgr, shared with other foundations.

The figures of 2007
At the end of 2007 the overall value of the financial activities of the Compagnia di San Paolo amounted to € 9.12 billion (+0.23% compared to 9.10 billions at the end of 2006). Nevertheless, if account is taken of the cash outflow from the total amount (€ 199 million in 2007 for disbursements and operational expenses), the total net return was 2.4%.
The market value of the assets of the foundation is the highest ever recorded and the average annual asset growth rate, calculated after expenditure, over the past five years has reached 11.5%.
At year end the market value of the equity interest in the bank was € 5.1 billion (from € 5.3 at the end of 2006). The Intesa Sanpaolo stock yielded a total annual return (including dividends) of -1.40% as against -4.53% of Mibtel. The managed portfolio (€ 4 billion from € 3.8 of 2006) achieved a positive overall result, thanks to the considerable and increasing asset diversification.

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