The way Generali has done this is with a quants model that blends historically low vol equities. It already has a European equity version and the global equity version will be launched at the start of 2017.
Favaloro likes using sophisticated actuarial techniques from the insurance side of the business to create investment products. “I like thinking of our insurance portfolios as R&D for the rest of the company,” he says.
Game changers
This move away from traditional benchmarks and product types poses a problem for more conservative investors, and this is where Favaloro sees consultants playing an important role. “I don’t see the use of consultants increasing but I do see it changing,” he says.
On the negative side, some consultants are threatening the position of fund groups by essentially offering the same services, running portfolios for their clients. Clearly, Favaloro is not in favour of this.
On the reverse of this, there are some fund groups that are offering consultancy services, which threatens the consultants. None of these things are particularly helpful, according to Favaloro. “When this happens, the level of trust between the different parties can only go down.”
However, there are issues with responsibility and governance meaning investors may not make certain decisions without a validated opinion from a recognised professional. And the move towards absolute return benchmarks is one of those areas.
“A big part of the shift from benchmark-centric to an absolute return approach is coming from consultants who are able to show the success of those approaches. So I hope the relationship between consultants, investors and providers like us can become more intense because, at the end of the day, we are all in the same boat.
“It’s not an oppositional situation. We all have the same mandate, and the more we can have a three-party conversation, the better the solution we can present to the investor.”
