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Interview – Generali’s Andrea Favaloro, breaking with a tradition

There is a shift under way from traditional benchmark tracking to absolute return investing. As investment habits change, Generali’s Andrea Favaloro says fund houses and intermediaries must respond with non-traditional solutions.


Dylan Emery

Andrea Favaloro has the unenviable task of trying to prepare his company for an unknowable future. And if he were trying to chase short-term investor trends, that would be pretty much an impossible task. Fortunately, the head of sales and marketing at Generali Investments can see a few important changes in the behaviour of fund selectors and asset allocators that have real momentum behind them.

One of the most important is the move away from measuring the success of portfolios by their performance relative to an index.

“We have seen a big shift across our traditional client base from a benchmark-centric portfolio into an absolute return/income-oriented portfolio,” says Favaloro. “This is a trend that already existed but has accelerated noticeably in the last 18 months.”

Though we do not have data on the move into absolute return benchmarks, you can get a feel for the increased interest in absolute return products in the graph below, which shows the total assets flowing into absolute return and hedge funds domiciled in continental Europe over the past 10 years, both active and passive. It is clear the flows have increased remarkably in the past three years.

Break with tradition

In that same time, Favaloro has seen changes in some of the more traditional markets in terms of investment habits. He specifically mentions pension funds in Italy, which have been loyal for a long time to the concept of a benchmark.

They have realised that their coverage ratio is decreasing, the low-yield environment will hit them quite hard and that Italian government bonds no longer provide the decent, acceptable level of income they once did.

“All these elements together have finally pushed them into accepting the fact that liability-driven portfolios have to be managed differently than a rigid benchmark approach,” says Favaloro.

“The reason I focused on Italy is that I think it’s interesting to analyse because we’ve experienced a strong acceleration in this trend in a very short period of time.

“Across 15-18 months we saw some of the big retirement schemes change from a benchmark-linked portfolio to an absolute return portfolio. As we speak, several portfolios of several billion euros are coming to renew and they are changing their mandates.”