Italy's Enasarco seeks to polish image with new governance code

Italian pension fund Enasarco has been working hard to allay lingering doubts about its integrity following several asset management scandals by pioneering a new governance code.

Enasarco – the pension fund for sales agents in Italy – said it hoped that putting the new code in place would increase external confidence in its processes.

Brunetto Boco, president at Enasarco, which has assets of about €7bn, said: “For the last two years, we have been working to improve our governance, changing the statute and introducing a code of conduct and rules to strengthen accountability and disclosure. It’s an initiative of our own, born out of the need to prevent risks in investment performance and conflicts of interest.”

The pension fund needs to have adequate internal controls to make sure government bodies, as well as the fund’s management, act according to the objectives set out in the fund’s by-laws, statutes, contract and internal code, Boco said.

“We also need to work to enforce the identification and separation of different responsibilities,” he added. 

As things stand, Enasarco’s definition of tasks among the different fund entities is unclear, Boco said.

He conceded it had low skill requirements and a lack of appropriate mechanisms for managing conflicts of interest.

Some six years ago, Enasarco was involved in a big scandal surrounding the sale of its property portfolio. 

Its then president Donato Porreca and others were accused of accepting bribes from property developer and financier Stefano Ricucci, who stood to gain from acquiring the portfolio.

At the beginning of 2012, there was another scandal over an error made by the pension fund’s previous management, which led to a controversial investment in two hedge funds.

Most recently, questions have been asked in the Italian Parliament about buildings owned by Enasarco.

Based on old contracts stipulated in the past, some buildings have allegedly been let too cheaply to politicians, trade unionists and former Enasarco officials.

As part of the internal project on governance, Enasarco has also been making efforts to encourage the pensions industry as a whole to take a good look at itself and shore up governance practices with internationally used standards.

To this end, back in November, it organised a two-day seminar in Rome on the governance of pension fund investment.

The event, which had been prompted by the president, focused on examples of existing best practice and international models.

Claudio Pinna, managing director at Aon Hewitt Consulting in Rome, and Francesco Verbaro, professor at the Italian School for Public Administration, have been working on the project with Enasarco.

Italy’s most recent reform of the pension system, which was introduced by Elsa Fornero, the minister of Labour, Social Policies and Gender Equality in Mario Monti’s technocrat government at the end of 2011, has opened the way for a further development of the supplementary pension funds market. 

If this is going to happen, Pinna and Verbaro argue, the pensions governance process needs to be improved.

The Rome seminar covered governance issues and good practice used internationally and also set down the framework for a set of legislative reforms to be introduced in Italy.

Pinna said one of the main governance issues for Italian pension funds was the balance between professionalism and representation of the members. 

Other key themes include the clear attribution of management roles and responsibilities, managing conflicts of interests, a clear definition of the investment decision-making process and disclosures of activities.

So what is the best way to address these points? 

“By considering the solutions already adopted at international level, but, in the end, also coming up with something that is in line with the specific Italian situation,” said Pinna.

Boco added that, even in the absence of any firm legislation forcing professional pension funds to self-regulate on governance, the funds were aware they needed to improve their governance.

“We think along the same lines as Adepp (the association of pension funds for liberal professions) – that we need to specify the duties and responsibilities of each body and entity in greater detail,” he said.

“Whenever possible, we need to set measurable objectives so  the performance of each director and entity can be easily examined,” he said.

Pension funds also need to enforce the skill requirements for internal bodies, he said, with the governing body then regularly reviewing management’s collective skill set and considering whether it is enough.

“Third, we need to adopt adequate self regulation to prevent and manage conflicts of interest,” Boco said.

Verbaro sees self-regulation as the preferable route for Italian pension funds to better governance.

“But, in the end, if they can’t do this, then a compulsory solution would probably be more efficient,” he said.

Verbaro believes management teams at pension funds in Italy are going to become more rather than less concerned about their responsibilities.

But stumbling blocks remain.

“Probably, it is a question of culture,” he said. “Members of the boards need, for example, to understand that their role has more to do with defining and monitoring investment strategy than taking decisions on specific single investments.”