Host of the hottest fashion shows on the planet and home to the major designer names Gucci, Versace, Fendi and Armani, Milan warrants the title of fashion capital of the world. But it is also the heart of Italy’s financial center, a center that operates with the same spark and vigor as its fashion industry.
In terms of total assets under management, Italy’s financial center ranks third in Europe after the UK and France, according to Assogestioni, the Italian association of fund managers, with some €943 bn ($1.2 tn) in total assets. However, Milan allocates only around 36 percent of its assets to balanced and equity funds, which together account for around €341 bn of its total assets. Italian investors are prone to betting on guaranteed profits, so government bonds are still the favorite channels for investing. All of this makes Milan an attractive but challenging market.
Meeting challenges is what makes IR exciting, however, and companies that succeed in convincing Milanese investors to take bets on their stock often gain wealthy, long-term investors. Milan is also an easy place to target, as Italy’s biggest mutual fund houses, which are mostly owned by regional banks, account for over half (about €545 bn) of Italy’s assets under management and many of them have offices within walking distance of each other in Milan’s center.
IROs planning a roadshow in Milan will benefit from knowing that some asset management companies are now shifting more of their investments into equities. ‘The appetite for risky investments and the necessity for yield are increasing; we have boosted the percentage of our assets invested in equities in the past couple of years,’ notes Massimiliano Pagani, head of the equity team at BNL Gestioni, one of Italy’s top asset management firms.
Investing style
For the most part, Milanese investors tend to be long-term shareholders. Hedge funds are not that popular in Italy so most portfolio managers look for companies with strong fundamentals and long-term potential. ‘The key to the hearts of Italian investors is to have a good long-term equity story and allow investors to cultivate a consistent relationship with senior management,’ comments Luca Torchia, IR manager at Enel, an electric utility firm in Rome.
Italian investors are known for having a ‘generalist’ investing culture. In contrast to US investors, Italian portfolio managers are not inclined to categorize themselves as either growth or value investors. ‘We don’t have a stated investment style – we do fundamental analysis and try to find good stocks that have mid to long-term horizons,’ explains Stefano Castoldi, head of equities at Nextra Investment Management, one of Italy’s largest institutions.
BNL has a similar investing culture. ‘We are generalists,’ agrees Pagani. ‘We don’t have any specific investing limits for our funds. We cover all markets, sectors and market caps.’
With this blended approach to investing, it’s not surprising that Milan-based investors look outside Italy’s borders for investment opportunities. For instance, European stocks account for 50 percent of Nextra’s equity investments, and the company is responsible for funds covering various international markets. At BNL, the investment structure is similar: Pagani reckons around 20 percent of the company’s equity assets are in domestic stocks, and the rest are invested in international shares.
US and UK stocks are favorites with Italian investors. ‘We track 110 separate buy-side companies in Milan, and we see $21.4 bn invested by Milanese portfolio managers in US equity and $8.6 bn in UK equity,’ says Cary Krosinsky, director of ownership data at Citigate Financial Intelligence. ‘After the US and the UK comes Japan at $6.8 bn, France at $6.1 bn and Germany at $4.3 bn.’
Investing in emerging markets is also of interest. For example, in the past couple of years BNL portfolio managers have turned their investing focus toward emerging economies like South America, Eastern Europe and Asia. ‘There is a strong appetite now for European and emerging market stocks, stronger then we have seen recently, due to the weak dollar,’ explains Pagani. ‘We have increased our equity percentage in the past couple of years and boosted our portion in the emerging markets, while keeping our position in the traditional markets mostly stable.’
Sell-side research is of great value to the Milanese investing public, so it makes sense to meet with the Italian sell side when doing a roadshow in Milan. Italian investors take into account what the local sell side has to say, especially on a day-to-day basis. ‘When we set up our own roadshows [without the broker], as happens after our full-year results, we always reserve some space for sell-side companies,’ comments Silvia Barettini, head of investor relations at Trieste-based Gruppo Generali, Italy’s largest insurance company.
Both Castoldi and Pagani say sell-side research is always used to evaluate potential buys. ‘We use external research on every single market, and for European markets we do our own research on top of that,’ notes Castoldi. BNL has no in-house analysts, so sell-side reports are a necessity for market insight. ‘In choosing stocks we generally tend to start from the sector perspective, so we use outside research to analyze the market, then try to pick interesting sectors,’ comments Pagani.
Investor types
True to their Italian culture, investors in Milan are usually very friendly and quite animated during meetings. Expect to have attentive spectators while presenting, and an inquisitive audience during Q&A sessions. It is wise to plan for one-hour meetings, split equally between presentation and Q&A.
‘Investors in Italy are very polite – they like to sit through presentations, and are very interested in learning about the company’s fundamentals,’ says Laurence Borde, CEO of Media Tree, a roadshow services firm in London. ‘They also ask a lot of questions during the Q&A sessions.’
‘Expect meetings to be very intense,’ warns Torchia. ‘Investors here know they will only meet the CEO once or twice a year, so they take full advantage of the Q&A session to extract as much information as they possibly can.’
Quality of senior management and long-term performance highly influence local investors’ buying decisions, so make sure your CEO or CFO presents a convincing long-term equity story. ‘One of the most important things we try to find out while meeting with a company is the quality of management, the clarity of its business strategy, and the probability that it will deliver on what it says,’ notes Castoldi.
Pagani advises keeping presentations to the point. ‘Don’t spend too much time showing new products; focus on the sensitive issues and prospects for growth,’ he says. For example, BNL asset managers like to know whether US companies offer stock options as a form of compensation. With companies exposed to emerging markets, Italian investors ask after the firm’s policy for hedging currencies. And if the company operates in a highly regulated and unionized country like Italy, investors want to know how the firm is structured.
Most importantly, Italian investors truly value having a consistent relationship with senior management. If you have Italian investors in your shareholder register, and would like to keep them, it pays to have your CEO or CFO visit Milan twice a year. ‘The more we can get in touch with the management of companies, the more we feel confident in taking big bets on them, so everything that can be done to have firms come and meet us is highly appreciated. Seeing senior management a couple of times a year is enough,’ comments Castoldi.
Navigating Milan
There are two international airports in Milan: the Milan Malpensa Intercontinental Airport and the Milan Linate International. If possible schedule flights into Linate International as it is closer to the city center, only a 20-minute cab ride away.
‘IROs should keep in mind who they are seeing,’ notes Borde. ‘There are institutions in Italy that will put in a big-ticket sum, but there are smaller ones that may not necessarily invest as much.’ There are around six major institutions worth holding one-on-one meetings with in Milan. Group luncheons and cocktail meetings are also highly attended, so it is wise to schedule one while in town.
Milan is a small city – compared with London, for example – and its financial center lies in the streets of the Piazza del Duomo, making walking from one institution to another doable. But, like most European cities, Milan has narrow and confusing streets, so getting a car service might be a better bet for those not so familiar with the city.
Finally, Milan is a site of many architectural wonders and fabulous food so, when in town, take advantage of all it has to offer. As Torchia notes, ‘Every time we go to Milan, we see it as a good chance not only to visit investors, but also to enjoy this beautiful town. If you go in the springtime, try walking from one institution to the other while eating a gelato!’
Buy-side institutions:
Arca
Azimut
BNL Gestioni
DWS Investments Italy
Euromobiliare Asset Management
Fideuram Investimenti
Monte Paschi Asset Management
Nextra Investment Management
RAS Asset Management
Sanpaolo – IMI Asset Management
Source: Citigate Financial Intelligence
Visitor information
Where to stay and present:
Four Seasons Hotel Milano
Via Gesu, 6/8
Milano 20121
Tel: +39 02 77088
Grand Hotel et de Milan
Via Manzoni, 29
Milano 20121
Tel: +39 02 723 141
Where to eat:
Al Buon Convento
Corso Italia, 26
Milano 20122
Tel: +39 02 8645 3546
Al Girarrosto
Corso Venzia, 31
Milano 20122
Tel: +39 02 7600 0481
