The strategic lines of asset management
The Compagnia di San Paolo adopts a “diversified asset management” model that is typically institutional and inspired by principles that have consolidated in time, combining our Entity’s tradition with international and independent advisor contribution in order to gain maximum benefit from the Foundation’s long term profile. The Compagnia considers this approach less risky than the “direct participation holding” model, as it offers greater diversification (for the type of instruments, sector, style, geography, etc.) and can yield returns that are more stable in time even though they can be more moderate during the markets’ euphoric phases. This model is reflected in the organization of the investment process, in which the Compagnia keeps decision-making and direct management responsibilities with respect to both strategic and non-strategic interests and to the portfolio of mission-related and local bias investments, while the management of the diversified portfolio is wholly entrusted to external parties, selected by independent advisors with the staff’s contribution, availing itself of professional skills that are progressively being concentrated into the dedicated company, Fondaco SGR, shared with other foundations.
The structure of the portfolio
At the end of 2012 the total market value of the portfolio of financial assets held by Compagnia di San Paolo amounts to € 5. billion (€ 4.95 billion net of the credit line with J.P Morgan).
The strategic portfolio, represented by the shareholding in Intesa Sanpaolo, is about 39% of the gross total, while the “managed” part, represented by the asset management of funds entrusted to Fondaco SGR S.p.A., is the main component with over 58% of the total. The portfolio is invested in equity funds (4% of the total), bond funds (30%), monetary funds (2.5%), alternative asset classes represented by reinsurance, commodities and currency (9%), hedge and absolute return funds (6%), private equity and venture capital (approximately 6%); the whole allocation is completed by about 4% invested in other participations, monetary market instruments, and liquid assets.
From the risk/yield angle, in 2012 the managed component once again efficiently carried out its task of reducing the portfolio’s total volatility, thanks to this indicator’s gradual adjustment compared to the peaks reached in 2011, for almost all asset classes: faced with a volatility above 49% of the investment in Intesa Sanpaolo, the managed portfolio maintained a total volatility of 2.7%, with a differentiated profile for the different asset classes, as represented in the above graph. The combined effect of the different investments brought the portfolio’s total volatility to under 29% - not considering private equity and non-strategic interest.
The results of 2012
In 2012 the financial markets showed fluctuating trends: after a positive start (the first three months), European equity dipped due to tension in the Euro area, as did, to a lesser extent, US equity due to uncertainty in US recovery. There was definite improvement in the second half of the year especially in European markets, thanks mainly to ECB intervention. The European DJ Euro Stoxx index showed gains above 14% at the end of the year, and the S&P500 ended the year with +13.4%. The financial and in particular banking sector was most affected by market fluctuations and ended 2012 with good earnings, highlighting however much more restrained performances by Italian banks (0.46% Intesa Sanpaolo compared to +23% of the banking European share index).
Despite high volatility in the market and the gradual worsening of the economic scenario in general, 2012 saw good income results for the Compagnia di San Paolo’s portfolio: all the macro asset classes which make it up showed positive performance, from equity funds (+18.35%), followed by bond funds (+6.90%) and by alternative investments such as reinsurance, commodities, currency, hedge/absolute return funds, private equity, venture capital (+5.90%).
On the whole, fund asset management entrusted to Fondaco Sgr during the year yielded a 7.10% money weighted return net of commissions, higher than the reference benchmark result (+6.22%) with very low volatility, just 2.4%; Intesa Sanpaolo security registered a 4.42% total return, due almost entirely to the dividend component.
Considering all the components, the whole portfolio’s total return was 6.09%, thereby amply exceeding the yield objective indicated in the Compagnia’s investment policy.