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Marco Mazzucchelli, CEO Sanpaolo Wealth Management K iev - May 27th, 2004

Investments of pension funds: challenges for the Regulation and Supervision - Lessons learned from the Italian experience -. Marco Mazzucchelli, CEO Sanpaolo Wealth Management K iev - May 27th, 2004. OPENING REMARKS ITALIAN PENSION SYSTEM REGULATORY FRAMEWORK AND KEY FINDINGS CONCLUSIONS

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Marco Mazzucchelli, CEO Sanpaolo Wealth Management K iev - May 27th, 2004

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  1. Investments of pension funds: challenges for the Regulation and Supervision- Lessons learned from the Italian experience - Marco Mazzucchelli,CEO Sanpaolo Wealth ManagementKiev - May 27th, 2004

  2. OPENING REMARKS ITALIAN PENSION SYSTEM REGULATORY FRAMEWORK AND KEY FINDINGS CONCLUSIONS ANNEX: SANPAOLO WEALTH MANAGEMENT – HIGHLIGHTS AGENDA

  3. 1. OPENING REMARKS A. The development of private pension systems (pillars II and III) in Eastern Europe could leverage on previous international experiences, mainly in terms of: - regulatory framework results - asset managers professional know-how B. Regulators should enable domestic players to complement their competence/offering through: • The acquisition of products/capabilities managed by foreign specialized players, and/or • The outsourcing of specific asset classes delegated to international portfolio managers C. The access to international markets/asset classes should be coupled with a solid system of checks and balances

  4. 2. ITALIAN EXPERIENCE: SUMMARY • Pension system regulatory framework still based on pillar I and evolving over time towards: - retirement age increase and reduction of replacement ratio - increased allocations on pillar II and III to cover pension gap (1) Effectiveness of supervision activities B. Complementary pension system still small but growing C. Pension funds adherents experienced good performance and stability despite major financial shocks, thanks to: • Leverage of competence and know-how from one of the largest European asset management industry • Wide range of investment products/markets available to portfolio managers in a well regulated environment 1) Calculated as the first pension payment vs. last salary received

  5. PENSIONS GAP 62,7 97,1 100 80 60 REPLACEMENT RATIO (1) 34,4 40 20 0 Pre-pension Reform (90s) Post-pension Reform (Amato+Dini) Pension Gap 2. ITALIAN PENSION SYSTEM REGULATION Amato Reform ‘92: Increased retirement age and contribution period Law ‘93 First regulation of complementary pension schemes (pillar II) Dini Reform ‘95 In pillar I, introduction of defined contribution system and gradual phase out from pay-as-you-go (PAYG) system Prodi Reform ‘97 PAYG phase out acceleration • PILLAR I FOCUS ON REDUCING PUBLIC DEBT Law ‘00 Introduction of Private Pension schemes (III pillar) Maroni Law Proposal ‘04 Enforcement of the complementary pension system (Mandatory TFR(2) conversion to pension funds) • PILLAR II AND III ACTION TO COVER PENSION GAP 1) Calculated as the first pension payment vs. last salary received 2) One off inflation linked retirement allowances Pension gap based on hypothesis of a 45 year old man, started working 25 years old, retires after 35 years of contributions Source: CERP; Eurisko multifinanziaria; Bankit General report on economic trend in Italy

  6. 2. REGULATORY ENVIRONMENT Supervision Authority - COVIP Pension Fund Sponsor Adherents/ Members Portfolio Managers Market / Products Custodian Bank • Dedicated Supervision Authority • Separate role for close-ended pension fund Sponsor and Portfolio Managers • Custodian Bank with mandatory monitoring functions on Portfolio Manager activities • Portfolio Managers can access diversified markets/products Source: ABI, Covip website, Legislative Decree n.124/1993

  7. 2. PENSION FUND SYSTEM EVOLUTION (1) CLOSE-ENDED PENSION FUNDS - AUM (MM Euro) OPEN-ENDED PENSION FUNDS - AUM (MM Euro) +282% +215% 4.543 +315% 1.731 550 1.190 N.° members 877.523 1.042.381 N.° members 222.032 364.604 Despite being a small part of the Italian retail financial assets (4%), the complementary pension fund market is experiencing a steady increase • Funds established after 1993 • Note: Percentage calculated as total pension funds AUM on AUM net of duplications of Asset Management industry • Source: Covip, Annual Report 2003

  8. 2. PERFORMANCE Open-ended pension funds performance in 2003 5.7% NOMINAL PERFORMANCE (1) Close-ended pension funds performance in 2003 5% Gross TFR Revaluation 3.2% TFR REVALUATION AND BACKTESTED PENSION FUNDS PERFORMANCE 400 350 300 250 INFLATION ADJUSTED PERFORMANCE (1) (2) 200 150 100 80 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1) Net of all expenses and taxes 2) Semi logarithmic scale; base 100 as May 31st, 1982 Source: Covip, Annual Report 2003

  9. 2. A ROBUST SYSTEM REGULATORY GUIDELINES • Risk diversification • Attention to conflict of interests: strategic and tactical asset allocations managed by different subjects (for close-ended funds) • Dedicated Authority (Covip) to monitor pension fund investments SYSTEM STABILITY AND RISK CONTROL Complementary pension funds market were not affected by recent financial shocks, both domestic and international EXAMPLE: PARMALAT 95% of pension funds mandates have a minimum “BBB-” rating constraint on investments: Parmalat bonds were virtually absent

  10. 2. THE ITALIAN ASSET MANAGEMENT MARKET (1) CAGR ’97 vs ‘03 BN € 1.400 1.231 +155% 1.200 +218% 271 1.000 800 Life insurance Technical reserves 422 +117% 600 482 Discretionary Portfolio Management 85 400 +166% 194 539 200 Mutual Funds 203 0 1997 2003 MUTUAL FUNDS MARKET 626 1.012 N.° Mutual Funds 53 55 N.° A.M. companies Pension fund managers can leverage on know how developed in one of the largest European asset management industry (1) Gross of duplication Source: Eurisko – Prometeia – 2003 and Assogestioni

  11. 2. ACCESS TO FOREIGN MARKETS AND INVESTMENT OPTIONS/LIMITS <50% of securities issued by OECD countries but not traded in regulated markets (1) <5% of securities issued by non-OECD and traded in regulated markets Securities issued by non-OECD countries not traded in regulated markets are forbidden ACCESS TO FOREINGN MARKETS CURRENCY MATCHING The fund is obliged to invest minimum 1/3 of its assets in Euro CONCENTRATION LIMITS <5% in any single unlisted company <10% in any single listed company Individual issuer < 15% of pension fund assets <20% of pension fund assets in a single related company Total allocation for related companies <30% of pension fund assets INVESTMENT LIMITS IN RELATED PARTIES Liquidity Shares of private equity and closed investment funds <20% of fund assets <20% of fund assets <25% of investment fund value OTHER QUANTITATIVE LIMITS Treasury Ministery, Decree November 21st, 1996, n.703 art. 4 and 5 1) Within such limits, the fund investments in equity cannot exceed 10% of the fund total assets and the total amount of debt and equity securities issued by non- OECD countries cannot exceed 20% of the fund total assets.

  12. 2. EFFECTS OF PORTFOLIO LIBERALIZATION PERFORMANCE: MSCI ITALY vs MSCI WORLD 160 140 120 100 80 60 40 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Liberalization of financial markets did not produce negative effects on domestic financial system

  13. 3. CONCLUSIONS Professional Asset Managers key principles Positive findings of Italian regulatory system - Open access to international markets and multiple asset classes • Portfolio diversification and dedicated expertise - Investments limits and sound supervisory system - Rigorous investment process and risk management approach - Split of competencies and responsibilities - Transparent and professional code of conduct Coherence between regulatory/supervisory system and professional asset management principles has positive effects both for pension fund adherents and domestic financial system

  14. ANNEX - SANPAOLO WEALTH MANAGEMENT- HIGHLIGHTS (1) TOTAL AUM March ‘04: 131 BN € (2) Products/Services: • Umbrella fund (40 sub funds) • Management of third- party funds and dedicated SICAVs • Management of life insurance products • Advisory services on capital protection techniques • Full service provider • Products/Services: • Institutional mandates • Strategic/tactical asset allocation advisory • Selection/monitoring of third-party institutional managers The leading Italian Group in the Wealth Management industry (Asset Management and Insurance) (1) JV 50% SPWM & 50% Santander Group (2) JV 50% SP Vita & 50% Reale Mutua

  15. CONTACTS Filippo Reda +39 02 30347 2253 E-mail filippo.reda@sanpaolowm.com Sanpaolo Wealth Management Head of Sales Sanpaolo IMI Deputy Manager - Chile Riccardo Pola +56 2 381 3434 E-mail rpola@sanpaoloimi.cl

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