This is the second installment in a series based on an interview with Generali Asset & Wealth chief executive Carlo Trabbatoni. To access the first part of the series, click here.

Carlo Trabattoni has spent the past five years building out a multi-boutique structure at Generali Investments and is now focused on growth opportunities.

He and his team are keen to grow the firm’s real assets and private assets capabilities though these already represent “quite a significant part of our business”.

He said: “At this time, Generali has more than €56bn of private assets under management, including over €35bn of real estate, which makes us the largest in Europe. We have over €3bn in infrastructure debt, we have €10bn in private equity and €7bn in private debt but we think we can do more and should do more, in particular when it comes to European loans and this is where we are going to invest more in the months and years to come.”

The development of the firm’s investment capabilities is only part of the challenge however.

“All of this is very nice but you need to sell it to the clients so you need to bring it to the end consumers. Whilst we have a strong footprint in Italy, in the past years we have started to develop our presence in France, Germany and Spain. We are starting to develop our presence in Switzerland, we are looking at the Nordics and, for the beginning of next year, we are starting to look at Asia. Distribution is at the core of the 2022-2024 plan.

“The model is a local-based model controlled centrally so we have a global product range that we would offer at the local level through Luxembourg-based products as you would expect. We will open offices in different parts of Europe as we have done so in Paris, Milan, Madrid, overseeing the Iberia region, Frankfurt and Zurich, and, when it comes to Asia, we think we will go with Singapore.”

Generali China Asset Management was founded in 2013 and was the first joint venture insurance asset manager approved by the China Insurance Regulatory Commission.

Trabattoni added: “We already have joint ventures and long-standing relationships in China that we will continue to leverage to develop products at the local level.”

As well as geographic reach, the chief executive is also keen to use technology to develop new channels of distribution.

He said: “Digital is already a big part of what we do and the advantage we have over some of the other houses is that we are relatively new to this and we are starting from scratch so we want to try to leverage as much as possible the digital footprint and one area that we are investing money at a group level in machine learning initiatives and specifically machine learning in asset allocation.

“Experimenting with new technologies like Blockchain is also crucial to gain a strategic knowledge on how the asset management industry could benefit from the tech-revolution. I’m thrilled to say that we are among the first European players to have carried out a market transaction based on blockchain infrastructure.”

The last part of the Generali transformation programme concerns the historic firm’s culture.

“We are also strengthening our international culture and mindset. Yes, we’re an Italian brand but our parent group’s activities are across the world and we definitely want to follow its steps. Our clients want a top standing service, performances and to be listened. We can speak their language wherever they are,” Trabattoni said.

Global Headwinds

Generali Asset & Wealth is working hard to reshape its business but it is doing so in a challenging investment environment. At the time of writing, the Italian blue-chip MIB benchmark was down 13% this year, the main French index was off 12% and Germany’s DAX was down 13%.

Reflecting on recent market moves, Trabattoni said: “Credit markets have suffered but, especially in Europe, I think there is the possibility to start looking at credit when you have higher quality issuers as it appears the market could be more benign. If you faint of heart, equities are going to present you with some challenges in the short term. Unless you have a long-term view, I’d suggest you stay away from equities. If you are invested, I would strongly suggest not to touch what you have invested in – quality will always come back. The irrational and erratic behaviour is solely because of the uncertainty of the scenarios.

Citing the start of Russia’s military offensive on Ukraine, the Generali Asset & Wealth chief added: “We all hope that we will quickly move to a different scenario where everything has settled but it is important to remember there was a world before February 24 and there is a world after February 24. After that awful day, the attention of market participants was more on central banks and which kind of approach they were going to take towards increasing inflationary pressure.

“Initially, the Fed and the ECB were initially showing their intention to remove their monetary support and everyone was settling on an increasing inflation rate although under control but the Russian invasion presented us with a scenario that I don’t think anyone thought was possible – namely that Europe could be on the verge of a recession.

“Even if we want to exclude Russia from the discussion, the situation in Europe is going to take some time before it gets back to normal, whatever ‘normal’ will look like.”

The Russian action in Ukraine has thrown Europe’s energy strategy into disarray and forced some European governments into tough decisions.

“If you think about gas supply, I don’t know to what extent Europe will go back to looking at Russia as the main supplier. Europe will have to rewrite its energy policy from the ground up and this would require new flows but also to understand, at single country level, how we can become less dependent on certain countries or certain sources of energy.”

The choices facing individual administrations are linked to historic decisions they have made around energy provision, and specifically nuclear.

Trabattoni said: “France took the choice of going nuclear many years ago whereas Germany decided about Fukushima in Japan to progressively decommission all of its nuclear plants while Italy chose not to use nuclear power many years ago so the European energy policy has to be re-written from the ground up.”

And, of course, the European energy crisis is taking place as individual countries try to plot their course to net-zero carbon emissions, added further complexity.

Trabattoni said: “Up until a few months ago, nuclear was not something you could pronounce when you were mentioning ESG now the big question is whether ESG will enlarge to include nuclear? Also, will traditional sources of energy like oil or coal be reconsidered because of the current situation? These are factors that I think we influence the ESG paradigm.

“Regardless of the peace talks, we are going to see volatile markets for a while and this is also because all of the central banks will have to look at how to model the future growth scenarios. Even before the aggression in the Ukraine, many central banks were facing strong single-digit percentages of growth and now we are talking about a recession.”

The third part of the Trabbatoni series will be published on Wednesday June 1.