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At 40 Years Old, Arca Fondi SGR Remains Proactive in Meeting Evolving Investment Needs

Ugo Loeser 1 - Global Banking | Finance

At 40 Years Old, Arca Fondi SGR Remains Proactive in Meeting Evolving Investment Needs

Milan-based asset management company Arca Fondi SGR has a rich history spanning four decades. Founded with a view to serving the typical Italian saver with a basic understanding of finance and a low-risk propensity, Arca Fondi SGR specialises in long-term investing. Today, the company’s widespread presence spans over 100 distributors, 8,000 bank branches, and a network of financial advisors and online channels.

When Wanda Rich, editor of Global Banking & Finance Review spoke with Arca Fondi SGR’s CEO Ugo Loeser, he revealed that when the company’s story started 40 years ago, it was based on four core values that it names as having always been integral to its work: delivering outstanding returns for clients, providing exceptional service, fostering continuous innovation, and maintaining clear communication and transparency. “These values have served as our guiding light throughout our journey, which consists of significant milestones and pivotal moments,” Ugo said. “It all began back in 1983, when Arca Fondi SGR was founded by 12 regional Italian banks. This happened shortly after the introduction of Law No. 77, which regulated mutual investment funds in Italy. In 1988, Arca launched Arca Previdenza, one of the first pension funds in Italy aiming to collect private savings to invest them for the long term.”

He recalled how the financial crisis of 2008/2009 served as a catalyst, compelling the industry to significantly enhance its offerings and bridge the gap between investors and mutual funds. “This led to the emergence of target date solutions, which featured regular coupon distributions, predetermined maturity dates, and decreasing durations. With the launch of Arca Cedola funds in 2009, we quickly became a prominent player in this field. In 2017, under the Gentiloni government, the concept of financing Italian companies directly through mutual funds was adopted, taking inspiration from the French model. This innovative approach aimed to provide support to Italian businesses.

“As a result, ‘Piani Individuali di Risparmio’ (Individual Savings Plans) were introduced,” he continued. “These are mutual funds that benefit from subsidised taxation and invest in exceptional Italian companies. We were well-prepared in this area and promptly launched the Arca Economia Reale Bilanciato Italia fund. This established Arca Fondi SGR as a pioneering asset management company in offering a PIR solution.”

Today, the company finds itself amidst a significant transformation in the asset management industry, which in recent years has led to an ever-greater focus on supporting sustainable growth, driven in part by European legislation. “In 2019, Arca Fondi SGR demonstrated its commitment to this cause by signing the United Nations Principles for Sustainable Investment (UNPRI) with the belief that through financial investments, we could make a positive impact on the environment and society.

“In 2021, we introduced Arca Oxygen Plus, the first in a range of mutual funds designed to blend potential returns with environmental consciousness. In 2022, we launched Arca Blue Leaders, an equity fund that invests in global stock market securities focusing on the sustainable use of water resources and the preservation of the marine ecosystem. Finally, with the recent introduction of Arca Social Leaders, we established the first Italian fund dedicated to addressing social issues.”

Ugo affirmed that environmental, social and governance (ESG) investing remains a top priority for Arca Fondi SGR. ESG investing has become increasingly popular in the asset management industry, with investors now more aware of the impacts their investments could have. “They seek investment opportunities that align with a sustainable future,” he said. “Governments and regulatory bodies worldwide are also placing greater importance on sustainability and ESG factors. This regulatory support offers clarity, standardisation and accountability, facilitating the growth of ESG investing and making it more widely adopted.”

While the inflow of investments has certainly had a positive impact on company valuations, Ugo feels that it is important to note that sustainability is not a bubble. “In fact, the average valuations of ‘Green’ companies are comparable to those of ‘Brown’ companies. In simpler terms, when we look at the price-to-earnings ratios (PEG ratios) adjusted for expected earnings growth in the medium term, we find that they are about the same for both traditional stock market indexes and ESG indexes.”

Arca Fondi SGR has successfully integrated sustainability into its investment processes, Ugo explained, which includes the incorporation of an ESG risk assessment model that enables a more comprehensive evaluation of investments and has a significant impact on investment outcomes. “Our proprietary model, which utilises data from the MSCI information provider, allows us to assign an ESG rating to nearly all the financial instruments we invest in. This rating encompasses the overall ESG performance, as well as specific ratings for the three pillars: environmental (E), social (S) and governance (G). The ratings provided by our model range from CCC to AAA, offering a similar level of detail to credit ratings. For example, the A rating is further divided into A-, A and A+.

“Our proprietary data and questionnaires, specifically tailored for small and medium-sized enterprises in the Italian market, enhance our analysis. Furthermore, each instrument is regularly monitored to determine whether the issuer is involved in any disputes related to their operations or products. Depending on the severity of the dispute, the instrument’s rating is adjusted accordingly. Issuers belonging to specific sub-sectors, such as aerospace and defence or casino and gaming, face penalties as an algorithm assigns them lower scores.”

 He added that the model also blacklists government issuers and corporate sub-sectors that do not align with environmental, social and governance sustainability values. “These are industries and companies known to harm society and the environment, such as producers of controversial weapons like landmines, cluster bombs, and chemical or biological weapons. Additionally, countries with controversial practices are also excluded from our investments.

“Our rigorous approach to sustainability has been recognised both nationally and internationally, earning various awards. Despite our overall size, we offer a wide range of ESG investment options. We currently have 14 sustainable funds, with 8 falling under Article 9 classification according to SFDR legislation, and 6 classified as Article 8.”

Ugo revealed that the reputation Arca Fondi SGR has gained for its innovation and development of new investment products stems from its company culture that focuses on meeting the evolving needs of investors. “Arca Fondi SGR’s ability to consistently innovate in product offerings is rooted in our service model, which prioritises client-centrism, transparency and product quality. Our company focuses on fulfilling the needs of customers and bank distributors, which leads to the development of unique investment solutions that take advantage of opportunities in the financial markets.”

This assertion is backed up by the events of the past year, in which Arca Fondi SGR’s efforts to find favourable opportunities have resulted in the successful introduction of new target date products.

Examples of these products include Arca Cedola Attiva Plus, a bond fund that generates high coupons through diversified investments, and Arca Difesa Attiva, which protects invested capital while offering substantial participation in the growth of European stock markets.

Ugo attributes these accomplishments to the organisation’s corporate culture. “Arca Fondi SGR has fostered a collaborative environment that encourages cooperation across different functions and has embraced an agile and flexible mindset, enabling a quick adaptation to evolving market conditions. Our dedicated teams consistently monitor competition and industry trends, while also utilising our proprietary big data platform and advanced analytics to analyse customer characteristics. Our goal is to deliver the best possible products to meet the needs and expectations of our clients.”

Several technological advancements have already made a significant impact on the wealth management industry, and these trends are expected to continue evolving. In Ugo’s opinion, there are two main elements that will have the greatest impact on the industry: AI/ML, and data analytics and big data.

“Artificial Intelligence (AI) and Machine Learning (ML) technologies have the potential to revolutionise asset management by improving efficiency, generating better investment outcomes, and enhancing the overall client experience,” he said. “By processing large amounts of data, AI and ML can identify patterns and generate insights that help optimise portfolios, manage risks and generate higher returns. Data analytics and big data can collect, process and analyse data from various sources, offering insights into market trends, investor behaviour and investment opportunities. By leveraging data analytics and big data, asset managers can make more informed decisions, tailor investment strategies to client needs and gain a competitive edge.”

Ugo summed up by emphasising the significance of innovation to Arca Fondi SGR’s ongoing success. “We have always been proactive in embracing innovation at Arca Fondi SGR. We understand the importance of leveraging technological advancements to enhance our services and cater to the needs of our customers. By adopting a customer- centric approach and providing a high-level service model, we aim to differentiate ourselves from other players in the market. As a result of our commitment to innovation and customer satisfaction, we have experienced significant growth in our customer base and managed assets. This success has laid a strong foundation for achieving impressive financial results, even during challenging times like 2022. We believe that our focus on innovation, coupled with our dedication to serving our customers, will continue to drive our success in the future.”

Global Banking & Finance Review

 

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