Funds of funds portfolio composition and its impact on the performance: evidence from the Italian market

Funds of Funds (FoF) are particular investment funds that invest resources in some mutual funds. This type of funds offers the possibility to achieve an higher diversification that an investor can’t realize using other instruments. One of the main differences among FoFs available is the strategy adopted by the manager to select the investment funds to include in the portfolio and the number of funds included in the portfolio. The funds’selection could be naïf or based on some aspect related to the funds‘ history as the past performance achieved, the fund’s investment style or the manager’s reputation. This paper analyses FoF’s Italian market and verifies whether the performance is influenced by either the diversification strategy or the number of funds included in the portfolio. The analysis demonstrates that FoFs’ best performers are those which are less geographically or sectorially concentrated; there are significant differences following different criteria/constraints applied in the funds’ selection.Fund of Funds; Diversification and Portfolio strategy

The performance evaluation of hedge funds: a comparison of different approaches using European data

The standard approach to the evaluation of funds assumes a normal return distribution and uses the variance as a measure of the funds risk. A few characteristics of hedge funds, such as the remuneration mechanism of the portfolio manager, make this assumption unacceptable and the traditional approach of Risk Adjusted Performance (RAP) must be revised before applying it to hedge funds. Some authors define a number of different RAP measures that attempt to overcome the problem related to the lack of normality: new RAPs are characterized by a more detailed return distribution analysis that does not consider only the first two moments of the distribution. A higher computational complexity may only be reasonable if selections founded on new RAPs permit to identify better investment opportunities than those selected with standard RAPs. This work analyses different approaches proposed with a view to calculating the RAP for hedge funds and evaluates advantages and limits of each proposed measure. An application of these measures to the European hedge funds market is proposed in order to demonstrate the usefulness of new approaches. An empirical analysis studies differences in funds classification based on different measures and demonstrates that the standard RAP approach is unable to identify the best performing hedge funds.Hedge funds; Risk Adjusted Performance and performance persistence

Banking regulation towards advisory: the “culture compliance” of banks and supervisory authorities

The financial regulation is moreover based on self-regulation and the coordination of external and internal supervision. This determines an evolution in the role played by the supervisory authorities, and in the manner in which they interact - with and almost advisory function - with the governance bodies of the banks, such as the board of directors, top management and external and internal auditors. The capacity to adequately perform such advisory functions entails the existence of consistent objectives, consistent knowledge and consistent cultural models. Our paper points at cultural gaps as a possible stumbling block in the efficient exchange of information and the sharing of problems and goals among regulators and the industry. We develop a cultural survey based on the application of a text-analysis model to a corpus of reference texts produced by two samples, drawn from among the supervisory bodies and the supervised entities. The empirical survey results reveal numerous fields of cultural differentiation, alongside several important areas in which the orientations of the two parties tend to overlap.Financial Regulation; Banking Culture; Cultural Compliance

M&A and post merger integration in banking industry: the missing link of corporate culture

The intense concentration process taking place in the financial systems of the major countries has attracted substantial attention from stakeholders and academics. The impact of M&A on value creation and efficiency / effectiveness improvements of banks involved appears, on the whole, disappointing and still hard to create benefits for customers. The reason seems to lie in the difficulty of governing a post-merger integration process, which generally requires good governance and management practices, significant experience and attention to cultural profiles and individuals’ behavior. More in detail, management literature recognizes the importance of corporate culture, considered as the set of values and decisions that drive individuals’ behaviors within organizations, for explaining alliance success in M&A operations. In fact cultural clashes could determine conflicts and negative effects, on one hand, on the timing and the effectiveness of the post-merger integration process and, on the other hand, on motivation and turnover of individuals. Set in Italian banking industry, this paper proposes a framework, applied to a representative sample of cases (about 78,2% of market share, based on total assets), for assessing cultural similarity of actors involved in M&A operations. Corporate culture is measured using an ethnographic approach focusing on language as its special artifact. The assessment is based on the definition of some key concepts that are relevant for the banking industry (e.g., competencies, competition, customer, disclosure, human resources, innovation, risk) and on a text-analysis model applied to a corpus of reference texts produced by the surveyed banks three years before M&A. The elaboration of data uses Wordsmith 4, a text analysis software developed by Oxford University. The paper is organized as follows: at first, we analyze and explain how low levels of cultural compatibility before M&A could limit the success of post-merger integration processes of banks. After, we propose and describe the measurement procedure of the cultural fit among bidder and target banks, based on text analysis. Lastly, we conclude with the discussion of the results obtained for each couple of banks involved in M&A and with suggestions for future applications of our framework.Banks; Merger & Acquisitions; Post-merger Integration; Corporate Culture

Coordination & cooperation in financial regulation: Do regulators comply with banking culture?

This paper identifies cultural gaps as a possible stumbling block in the efficient exchange of information and the sharing of problems and goals among regulators and the industry, with respect to the recent innovations introduced in the financial sector, which are orienting the supervisory authorities towards the adoption of new interaction models with the supervised financial intermediares.

Corporate culture and shareholder value in banking industry

This paper analyses the casual relationship between corporate culture and shareholder value using a sample of large banks in the French, German, Italian and U.K. banking systems over the 2000 to 2003 period. Firstly, we measure shareholder value using an Economic Value Added estimated through a procedure tailored to account for banking peculiarities. Secondly, we measure corporate culture using language as its particular artifact and developing a cultural survey based on the application of a text-analysis model to a corpus of reference texts produced by the sample of banks. We posit six hypotheses regarding the relationship between corporate culture and bank profits and shareholder value. Our results noticeably show that bank profits and shareholder value benefit from different orientations of banking corporate culture.

Politicians “on board”! Do political connections affect banking activities in Italy?

This paper analyzes the effects of political presence in the boards of directors of cooperative banks. We refer our analysis to all politicians (almost 160.000) belonging to a political body in Italy. Overall, our dataset contains 1.858 board members referring to 127 cooperative banks. Results show that politically connected banks, in which politicians have executive roles in the board of directors, display higher net interest revenues, lower quality of the loans portfolio and lower efficiency relative to a control group of non-connected counterparts. Therefore, in the current debate on the reform of the statutes of the Italian cooperative banks, we argue that the problem is not for politicians to be in the boards but for them to hold executive positions.Cooperative Banks, Politics, Corporate Governance

Competition and regulation in the banking and quasi-banking industries: evidence from Italy

Over the past three decades, new types of credit institution have been developed and new forms of intermediation have succeeded in establishing themselves as important competitors in the credit market. The literature on regulation has never paid much attention to the behaviour of quasi-banking institutions, from the point of view of their distinctive characteristics and management peculiarities This paper investigates the relationship between regulation and competition among non banking credit intermediaries and banks. This study assess the importance of the management characteristics and profiles of quasi-banking institutions, for regulatory purposes, and to examine the relationship between the regulatory process and differing business behaviours. This study deals with a specific aspect of the regulation of financial systems. In any case, in the wide-ranging and animated discussions on regulation, recently there seems to be a growing interest in this specific issue, in respect of both the tendency towards the harmonization of regulations and of the extension of forms of control to sectors and/or activities which had previously been excluded. The paper also discusses the ideal design for an empirical investigation to analyse: 1) the management and organization structures of quasi-banks and their differing characteristics and behaviours, in respect of the regulatory process; 2) if the recent development of controls ensure competitive equality among the financial institutions. The empirical investigation has focused on factoring institutions and identified some behavioural differences which are relevant for the supervisory authorities

Quantum computers as universal quantum simulators: state-of-art and perspectives

The past few years have witnessed the concrete and fast spreading of quantum technologies for practical computation and simulation. In particular, quantum computing platforms based on either trapped ions or superconducting qubits have become available for simulations and benchmarking, with up to few tens of qubits that can be reliably initialized, controlled, and measured. The present review aims at giving a comprehensive outlook on the state of art capabilities offered from these near-term noisy devices as universal quantum simulators, i.e. programmable quantum computers potentially able to calculate the time evolution of many physical models. First, we give a pedagogic overview on the basic theoretical background pertaining digital quantum simulations, with a focus on hardware-dependent mapping of spin-type Hamiltonians into the corresponding quantum circuit model as a key initial step towards simulating more complex models. Then, we review the main experimental achievements obtained in the last decade regarding the digital quantum simulation of such spin models, mostly employing the two leading quantum architectures. We compare their performances and outline future challenges, also in view of prospective hybrid technologies, towards the ultimate goal of reaching the long sought quantum advantage for the simulation of complex many body models in the physical sciences.Comment: 27 pages, 12 figures. Pre-submission manuscript, see Journal Reference for the final versio

Fault-Tolerant Computing with Single Qudit Encoding

We present a general approach for the Fault Tolerant implementation of stabilizer codes with a logical qubit encoded into a single multi-level qudit, preventing the explosion of resources of multi-qubit codes. The proposed scheme allows for correction and universal quantum computation. We demonstrate its effectiveness by simulations on molecular spin qudits, finding an almost exponential suppression of logical errors with the qudit size. The resulting performance on a small qudit is remarkable when compared to qubit codes using thousands of units