VFM: Thinking international
Valletta Fund Management, Malta's biggest fund management company, is gearing itself to grow the business by targeting institutional clients, general manager Peter Perotti said.The company is also gradually stepping up its overseas marketing efforts in...
Valletta Fund Management, Malta's biggest fund management company, is gearing itself to grow the business by targeting institutional clients, general manager Peter Perotti said.
The company is also gradually stepping up its overseas marketing efforts in Italy, North Africa and the Gulf and has reported renewed interest, particularly in the Gulf countries.
"Of course, the domestic retail market remains our priority and the growth rate is still there. People are still discovering funds and we need to continue to give them new and diversified products. But given the size of Malta's market, we need to look beyond."
Mr Perotti said in an interview that the immediate challenge for VFM was the euro transition process. Over the past few months the company had introduced several euro-denominated products and products having a mix of both euro and liri, as well as other currencies when necessary, he said.
With euro adoption all lira accounts would automatically convert to euro, but VFM would continue to place an emphasis on offering diversified portfolios featuring other currencies, notably sterling and the dollar.
"Euro adoption does mean that potentially we will face new competition from European fund management companies and we are not taking this lightly, but we do have strengths which should serve us well," Mr Perotti said.
"Investors tend to choose on the basis of who they are most comfortable with, and we are well placed on the local market, especially through the network of Bank of Valletta branches and other financial intermediaries.
"Our brand is well known and the track record is excellent. The challenge now, therefore, is to continue to offer a wide portfolio of products."
He said that the fact that Insight Investments (part of the Halifax Bank of Scotland Group) was a shareholder in VFM and handled the investment management of its funds was another big plus to counter competition, not least because Insight were in an ideal position to keep VFM aware of the latest developments in foreign markets early, so that they could be quickly applied in Malta.
Clients, he argued, were getting increasingly sophisticated. They no longer parked their money in one savings or investment product and left it there but shifted around various products according to the sectors doing well in Malta or abroad.
VFM, which started operating in 1995, had for several years been focused on money, bond and equity funds. It diversified to property funds almost two years ago, with spectacular success, and there is a gradual movement now to absolute return funds.
"We were lucky that when the local market was not performing we could offer alternative products, such as the Property Fund, which exceeded our expectations." The Property Fund has now grown to e83 million, with a yield of 10.5 per cent in under two years.
"Rather than the retail level, I expect the new competition to go for the institutional level, for business from large Maltese companies and multi-nationals which are operating from Malta. The former needs a network, which is one of our strengths. But we are gearing ourselves to compete more strongly at the institutional level as well.
"These potential clients want their money placed in funds or products that are UCITS certified and rated. We are working on products to address these needs. Obviously competition will be stronger than in the domestic market and we have to offer returns that are as competitive as abroad."
VFM announced last week that its Vilhena Funds SICAV qualified to carry out the activities of a Maltese UCITS (Undertakings for Collective Investment in Transferable Securities) and the Malta Financial Services Authority issued a revised investment services licence to VFM to operate as a Maltese management company pursuant to UCITS regulation. All funds in the Vilhena SICAV are therefore freely passportable across EU member states.
Mr Perotti said that although business with institutional clients was still small compared to the company's total turnover, it was growing.
"The large corporates coming to Malta have realised that they can channel their extra liquidity to money funds requiring just two-days notice for settlement, earning significantly better returns.
"Now that we have the first UCITS certified Sicav, we can move faster on similarly certified products such as money funds."
"Over this last year our money funds have grown at a very encouraging rate," he said.
He said that with UCITS it had now also become possible for VFM to market its funds in Europe.
He recently returned from talks in Italy, which he said, was at the centre of the frame for VFM marketing in Europe. "It is not going to be easy. Italy is already a well developed and sophisticated market and to be successful there one has to develop niche products."
UCITS, he said, had some disadvantages compared to other financial investment products, notably in the notification process with regulators.
The EU was aware of this and was working to reduce notification periods. Proposals were also made to the European Commission for a system based on regulator-to-regulator communication as opposed to one requiring UCITS managers to file information directly with host member state authorities. However, these proposals would probably take time to adopt.
"We are also looking at other areas. Egypt and the Gulf are definitely worth it if you have a good product.
"Egypt is not as well developed as Italy as a market and it does require investment on our part, but I can say that things are going to plan."
Of course, overseas VFM does not enjoy the brand recognition it has in Malta.
"The fact that we have Insight as our partners and HBOS is a FTSE top 100 company helps us a lot. Once we joined the EU, it became far easier to speak to potential clients abroad since they know we have EU standards in place.
"In the Gulf we have seen an increased interest in Malta in the wake of the Tecom investment in the Maltese economy."
Mr Perotti said that on the domestic front many Maltese investors used to seek the services of foreign investment service providers because local investment products were not available. They now are, and an increasing number are switching their funds from foreign jurisdictions to management from Malta.
"Wealth management is an area which is growing very, very fast," he said.
He was however, disappointed, by the level of activity at the Malta Stock Exchange.
"Activity unfortunately does not seem to move in a logical way. One can see the flat reaction over the past few days to the HSBC results and Lombard's planned majority stake in Maltapost. The fundamentals of the Maltese companies on the MSE are strong, and this year they are stronger than last year. Yet sentiment-driven activity pushed up equity trading last year but did not this year.
"In the bond market there was a certain price correction but one has to wonder how there isn't more activity in government bonds. With Malta having achieved the Maastricht criteria and about to adopt the European currency, it is more reassuring to invest in Maltese government paper. An analysis of the spreads of euro and lira rates shows a premium on the latter. Once this premium is removed with euro adoption, bond prices should go up. In other countries which had adopted the euro, bond yields came down while prices went up."
One was anticipating the same for Malta, he said.
"The market should be looking at where we are going in the next few months and the outlook for government bonds is certainly not negative, barring the unexpected," Mr Perotti said.
The company is also gradually stepping up its overseas marketing efforts in Italy, North Africa and the Gulf and has reported renewed interest, particularly in the Gulf countries.
"Of course, the domestic retail market remains our priority and the growth rate is still there. People are still discovering funds and we need to continue to give them new and diversified products. But given the size of Malta's market, we need to look beyond."
Mr Perotti said in an interview that the immediate challenge for VFM was the euro transition process. Over the past few months the company had introduced several euro-denominated products and products having a mix of both euro and liri, as well as other currencies when necessary, he said.
With euro adoption all lira accounts would automatically convert to euro, but VFM would continue to place an emphasis on offering diversified portfolios featuring other currencies, notably sterling and the dollar.
"Euro adoption does mean that potentially we will face new competition from European fund management companies and we are not taking this lightly, but we do have strengths which should serve us well," Mr Perotti said.
"Investors tend to choose on the basis of who they are most comfortable with, and we are well placed on the local market, especially through the network of Bank of Valletta branches and other financial intermediaries.
"Our brand is well known and the track record is excellent. The challenge now, therefore, is to continue to offer a wide portfolio of products."
He said that the fact that Insight Investments (part of the Halifax Bank of Scotland Group) was a shareholder in VFM and handled the investment management of its funds was another big plus to counter competition, not least because Insight were in an ideal position to keep VFM aware of the latest developments in foreign markets early, so that they could be quickly applied in Malta.
Clients, he argued, were getting increasingly sophisticated. They no longer parked their money in one savings or investment product and left it there but shifted around various products according to the sectors doing well in Malta or abroad.
VFM, which started operating in 1995, had for several years been focused on money, bond and equity funds. It diversified to property funds almost two years ago, with spectacular success, and there is a gradual movement now to absolute return funds.
"We were lucky that when the local market was not performing we could offer alternative products, such as the Property Fund, which exceeded our expectations." The Property Fund has now grown to e83 million, with a yield of 10.5 per cent in under two years.
"Rather than the retail level, I expect the new competition to go for the institutional level, for business from large Maltese companies and multi-nationals which are operating from Malta. The former needs a network, which is one of our strengths. But we are gearing ourselves to compete more strongly at the institutional level as well.
"These potential clients want their money placed in funds or products that are UCITS certified and rated. We are working on products to address these needs. Obviously competition will be stronger than in the domestic market and we have to offer returns that are as competitive as abroad."
VFM announced last week that its Vilhena Funds SICAV qualified to carry out the activities of a Maltese UCITS (Undertakings for Collective Investment in Transferable Securities) and the Malta Financial Services Authority issued a revised investment services licence to VFM to operate as a Maltese management company pursuant to UCITS regulation. All funds in the Vilhena SICAV are therefore freely passportable across EU member states.
Mr Perotti said that although business with institutional clients was still small compared to the company's total turnover, it was growing.
"The large corporates coming to Malta have realised that they can channel their extra liquidity to money funds requiring just two-days notice for settlement, earning significantly better returns.
"Now that we have the first UCITS certified Sicav, we can move faster on similarly certified products such as money funds."
"Over this last year our money funds have grown at a very encouraging rate," he said.
He said that with UCITS it had now also become possible for VFM to market its funds in Europe.
He recently returned from talks in Italy, which he said, was at the centre of the frame for VFM marketing in Europe. "It is not going to be easy. Italy is already a well developed and sophisticated market and to be successful there one has to develop niche products."
UCITS, he said, had some disadvantages compared to other financial investment products, notably in the notification process with regulators.
The EU was aware of this and was working to reduce notification periods. Proposals were also made to the European Commission for a system based on regulator-to-regulator communication as opposed to one requiring UCITS managers to file information directly with host member state authorities. However, these proposals would probably take time to adopt.
"We are also looking at other areas. Egypt and the Gulf are definitely worth it if you have a good product.
"Egypt is not as well developed as Italy as a market and it does require investment on our part, but I can say that things are going to plan."
Of course, overseas VFM does not enjoy the brand recognition it has in Malta.
"The fact that we have Insight as our partners and HBOS is a FTSE top 100 company helps us a lot. Once we joined the EU, it became far easier to speak to potential clients abroad since they know we have EU standards in place.
"In the Gulf we have seen an increased interest in Malta in the wake of the Tecom investment in the Maltese economy."
Mr Perotti said that on the domestic front many Maltese investors used to seek the services of foreign investment service providers because local investment products were not available. They now are, and an increasing number are switching their funds from foreign jurisdictions to management from Malta.
"Wealth management is an area which is growing very, very fast," he said.
He was however, disappointed, by the level of activity at the Malta Stock Exchange.
"Activity unfortunately does not seem to move in a logical way. One can see the flat reaction over the past few days to the HSBC results and Lombard's planned majority stake in Maltapost. The fundamentals of the Maltese companies on the MSE are strong, and this year they are stronger than last year. Yet sentiment-driven activity pushed up equity trading last year but did not this year.
"In the bond market there was a certain price correction but one has to wonder how there isn't more activity in government bonds. With Malta having achieved the Maastricht criteria and about to adopt the European currency, it is more reassuring to invest in Maltese government paper. An analysis of the spreads of euro and lira rates shows a premium on the latter. Once this premium is removed with euro adoption, bond prices should go up. In other countries which had adopted the euro, bond yields came down while prices went up."
One was anticipating the same for Malta, he said.
"The market should be looking at where we are going in the next few months and the outlook for government bonds is certainly not negative, barring the unexpected," Mr Perotti said.