Arca SGR explains its selection outsourcing decision

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Marco Vicinanza, CIO at Arca SGR in Milan, explains the decision to outsource fund selection to Prometia.

Its approach to fund selection is quite unique in the Italian investment industry.
Arca SGR, one of the main independent Italian asset management firms, has decided, following a decrease in assets administered by its third party funds and multi-manager products, to outsource its fund selection process.

It now relies on an external partner, Prometeia, to obtain a funds buy list for each asset class of interest.

Selected funds are used for Arca’s absolute return funds with a volatility target approach, which implies a dynamic asset allocation approach. The platform includes Arca Cash Pluc, Arca t3 and Arca t5.

Marco Vicinanza, chief investment officer at the Milan-based firm, says the firm has selected Prometeia, an Italian advisory firm which provides real time funds data, as well as risk management, wealth management, financial advisory, business consulting and training services.

Founded in 1974, Prometeia has offices in Milan, Bologna and Beirut.

“Fund selection is a time-consuming process which requires expertise and a structured team. We have opted for an external adviser to whom we assign a specific mandate which includes parameters we prioritize in fund selection,” Vicinanza says.

The criteria according to which Arca picks its favourite funds among the ones shortlisted by the external firm reveal another peculiarity of the process.
Arca doesn’t aim at finding the best fund in class, but it places most emphasis on funds’ cost, liquidity and tracking error.

“We are looking for investment vehicles which can replicate a given asset class which also have a limited total expense ratio. Alfa is volatile, but you pay the cost regardless of the performance and this is what most often matters to us,” Vicinanza says.

Arca’s approach is based on the principle that in the short term each manager has to face a volatility problem and that the ability to select a fund able to beat the market is not often given.

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