Italy’ largest pension fund, Fondazione ENPAM, plans to use eVestment to research new investments in equities and alternatives managers as its asset base grows, according to a senior portfolio manager.
Speaking at eVestment’s Italian Manager Seminar in October, Vladimir Spirito, head of alternative investments, said the €21 billion pension fund is adding €1billion in contributions each year and will double hedge fund investments and introduce a “home bias” for the first time with significant allocations to domestic products.
Earlier this year, ENPAM conducted a review of its strategic asset allocation, and decided to make changes based on its macro assessment that low rates, low realized inflation, moderate synchronized global growth, and supportive financial conditions meant it was “a good environment for risky assets and the skill factor,” Spirito explained.
This meant significantly upweighting domestic equities, hedge funds and private equity (see figure 1). “We are focusing on active managers at the moment,” Spirito said.
Head of Alternative Investments,
Figure 1: Strategic Asset Allocation Changes at ENPAM
Investment due diligence through eVestment
To select managers, Spirito said the ENPAM team needs a lot of data and encouraged managers to submit data to eVestment, including quantitative data in areas such as track record, but also on qualitative data such as organisation size and team turnover.
When searching for a new manager, the pension fund runs a pure quantitative screening of desired universes in the database. Spirito described two recent research programmes for global equity and global bond mandates to highlight their investment due diligence process.
“First, we made a screening of the entire universe. For example, for global equity, in eVestment, we had 457 passive managers and 455 active managers. After our screening, we had 62 managers selected and 53 products. It was the same process for global bonds. Then, we run a qualitative analysis and qualitative screening of these results on things like total AUM, firm information, and investment process and philosophy. We have an internal scoring system for this data, and we produce a ranking. It’s very simple but the information is massive to analyse.”
“For me it’s very important to have the data for the operational due diligence part of the process also,” Spirito explained. “Firm information, organisation structure, legal issues, investment process, philosophy – data is used throughout the whole manager selection process.”
Increasing assets to deploy and upcoming mandates equities
With contributions from scheme members adding €1 billion of new money to be invested each year, ENPAM is looking to deploy these assets within its SAA framework. The fund is currently analysing hedge funds, before looking to add alternative credit and equity managers in Italy in 2018.
In hedge funds, the target weight has increased to 11% from 4.8% – a significant increase Spirito noted. The team is focusing on seven investment strategy areas: Long/Short Equity, Equity Market Neutral, Global Macro, Event-Driven, Multi-Strategy, Long-Short Credit, and Reinsurance.
Initially, Spirito reviewed over 3000 managers and 5000 products, which was narrowed down to 250 managers by screening on a combination of track record, strategy AUM, risk-adjusted returns and stress test measures. Then, qualitative and quantitative screening criteria were applied, looking again at track record, investment process quality, AUM dynamics, and company organisation information.
The team is now in the final stages of operational due diligence and expects to award mandates in the coming months, and will be using eVestment for monitoring of managers in future also.
“eVestment is really a complete platform in terms of detailed and accurate information that we use as part of our process,” Spirito said.