Annual report 2004 - Compagnia di San Paolo

Financial Management
addition to those already subscribed with Sanpaolo IMI private Equity.
As for investment diversification, in 2003 most of the Compagnia’s exposure on the Stock Markets
consisted of stakes and, in particular, of that in SANPAOLO IMI S.p.A. 2004 marked a progressive
growth of equity managed portfolios which at the end of the year reached over 450 million euros.
On the whole, at the end of the year the Compagnia’s equity exposure levelled off at 51% of all assets.
In general, the amount entrusted to managers in the bond sector did not change substantially during
the year, though it recorded an increase in the exposure of inflation-linked bonds.
At the end of the year they amounted to over 12% of total investments in the money market and fixed
income sectors.
Shares recorded a two year recovery, after the heavy falls of the last three years. In this respect it has
to be noticed that return in this sector was close to that of traditional bonds, while indexed bonds
recorded a return that was higher than or close to the performance of the two leading economic areas
in the world (USA and Europe).
The present model based on a diversification of assets into different investments classes, managing
styles and geographical allocation is sharply different from the holding model based on participation
adopted by other italian Foundations, thus placing the Compagnia in the main stream of the major
international institutional investors.
The 2004 financial year recorded a further step forward towards a portfolio diversification close to the
strategic allocation; achieving this aim is a priority for the Governing Bodies and for the staff of the
Compagnia.With the starting of equity mandates and the definition of three additional mandates in
the first months of 2005, the allocation of resources to the equity sector is virtually concluded, as
Absolute return portfolios in asset allocation
During the year the Compagnia carried out a preliminary
selection of absolute return managers, thus introducing a
new category of investments which differs from
traditional asset classes.
Expected return in absolute return investment strategies
do not depend on benchmark market indexes nor on the
kind of investment, as it is defined in terms of absolute
return in the medium term, through an active portfolio
management and respecting the absolute risk limits
defined in advance.
Many different products meet these requirements,
ranging from the most traditional balanced portfolios to
the most advanced multi-asset strategies, from
concentrated stock portfolios to portfolios based on
derivative instruments and cash, in order to reduce return
volatility. A different qualitative approach to absolute
return strategies doesn’t exclude the use of standard
quantitative tools: volatility and relative return have less
significance whilst the analysis of absolute value is vital
to assess the efectiveness of risk allocation. Absolute
return products must have a low correlation with various
indexes - therefore also with traditional investment toolsso
that they can provide, above all, a good chance to
diversify the portfolio. Benchmarks like beta, alpha and
the correlation coefficient are the first to be taken into
account when analysing these products; added value
(alpha) generating sources have to be clearly identified as
they represent the only relevant risk factor in the
assessment of achieved results. In this kind of
investments selection is therefore fundamental: risk, as
well as return, depend on the ability of the manager and
not on the benchmark market. This type of product is
particularly suitable for institutional investors like
Foundations, as they are perfectly in line with their
strategic objective of safeguarding the assets real value
and producing a constant cash flow. In addition, Absolute
return products enable to diversify the nature of risks,
with respect to those implicit in the most traditional asset
class, like equity risk premium, and also compared to
those entailed by alternative investments, due to their
scarce transparency and liquidity.
131