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Brexit to impact how Italian pension funds will choose asset managers for their portfolios

by Vitaliano D’Angerio

UK Prime Minister Theresa May said it clearly: by next March the country will start the process to withdraw from the European Union, known as Brexit. The decision could have possible repercussions on the management of the pension funds of several million Italian citizens.

The law that introduced in Italy the complementary pension funds (known as the “Maroni reform”), says the assets can be managed also by foreign companies as long as they have a legal base in one of the EU countries. The legislation specifically mentions “the statutory base” as the criteria to establish the country of residence. The same applies to the pension funds of Italian professional workers: the decree-law concerning these institutions is expected to be published soon. The case of foreign asset managers is regulated under Article 6 of law 252/2005. Also in this case, the foreign asset manager must be legally based in the EU.

What will happen when the UK leaves the EU?
The pension funds sector is regulated by Covip which says that the situation is being closely monitored, but no formal initiative has not been yet announced. What rules should the pension funds follow then now when they are to launch tenders to select managers for their assets? The answer, basically, is that Brexit has not yet started, despite May's announcement. It's a wait and see mood. But when a pension fund will need to transfer its assets because of Brexit from one manager who will suddenly lose one of the pre-requisites to another, it will have to bear the costs nonetheless.

Shouldn’t a temporary solution be thought of then?
A perfect example of this problem is offered by the Cometa pension fund (metal workers), the largest in Italy, with 400,000 members, €10 billion worth of assets, which on September 30 chose the companies which will manage a portfolio of €8 billion of its assets. The winners included BlackRock IM and State Street Global Advisors, two US asset managers that are among the biggest in the world and have their legal base in the UK, with only one branch in Italy. What will happen starting March 2017, when Brexit will be set in motion?

BlackRock and State Street declined to comment. Cometa informed that “when they won the contract the asset managers met the criteria set by the tender,” and in case of changes the expected procedure will be put in place. The hope is that the transition period will be regulated as soon as possible by Covip and the ministries involved (the Economy and the Labor ministries) to avoid additional costs.