Brevan Howard Among Hedge Funds Scrutinizing Italian Populists

(Bloomberg) -- Italy’s anti-establishment Five Star Movement is attracting increased attention from investors ahead of next year’s election.

Analysts from hedge funds Brevan Howard Asset Management LLP and Moore Capital Management LP as well as Bank of America Corp. were among the attendees at a closed-door meeting in Rome on Nov. 13 where Five Star lawmakers were quizzed on their plans for ensuring stable government in Italy, their approach to the economy and the euro.

More than a dozen international asset managers, investment banks and other investors were represented at the gathering, according to a list of participants seen by Bloomberg. The firms represented, which manage more than $5 trillion in total, also included Wellington Management Group LLP and Paris-based fund manager Amundi SA.

“Investors are treating us as a potential government,” Carla Ruocco, one of three Five Star lawmakers who took part, said in a telephone interview. “This is the first time so many people from the investment community have come to see us. We didn’t have any meetings like this before the last election in 2013.”

The exchange spotlights how the investment community is starting to weigh up the chances of Five Star -- founded by former comedian Beppe Grillo in 2009 -- taking power in the euro zone’s third-biggest economy after elections due no later than May. With Five Star’s doubts about the euro and plans to ramp up spending, a Five Star victory could pose a risk to Italian assets at a time when the country’s economic recovery is trailing most of its peers.

The extra yield investors demand to hold Italy’s 10-year bonds instead of similarly dated German bunds was 138 basis points at noon Friday compared with more than 210 basis points in April. That was when the anti-euro nationalist Marine Le Pen’s run for the French presidency was roiling European debt markets.

Leading in Polls

A spokesman for Bank of America confirmed the meeting. Brevan Howard and Moore Capital declined to comment. Spokesmen for Wellington and Amundi did not respond to requests for comment.

Five Star is leading in opinion polls ahead of the ruling Democratic Party with former premier Silvio Berlusconi’s center-right Forza Italia third. All the same, Five Star is set to fall short of a parliamentary majority and has ruled out forming a coalition, limiting its chances of taking office.

Investment firms routinely quiz mainstream parties ahead of major elections and last month’s meeting, in a Senate conference room, shows the growing status of Five Star.

“The investors asked us mainly about how we would be able to govern without forming a coalition, whether we’d abandon the euro and how we want to change the European Union,” said Ruocco, a member of a parliamentary commission looking into Italy’s financial system. Five Star lawmakers Carlo Sibilia and Laura Bottici also took part.

Euro Plans

“We told them we’d accept support from other parties for our government’s measures on a case-by-case basis, but we’re not going to form alliances to share out jobs,” Ruocco added. “We said a referendum on leaving the euro zone is a last resort for us.”

In a first instance, the party would seek to renegotiate the rules of euro membership to ease restrictions on spending and government borrowing, Ruocco said.

Two people present at the meeting, who asked not to be named because they were not authorized to speak publicly, confirmed Ruocco’s account.

One of them said the lawmakers were friendly and open, but their vague answers including on how Five Star would pay for a universal citizen’s income, and how it would overhaul EU treaties were alarming. The proposal for a 20-year energy plan also startled some, the person said, since past experience suggests Italy could see more than five different administrations during that period.

The next government will be Italy’s 65th since World War II.

©2017 Bloomberg L.P.