Italian institutions and private markets: a tough balancing act

Over the last decade, private markets have evolved from a niche allocation into a strategic pillar of Italian institutional portfolios. All kinds of Italian institutions – pension funds, casse di previdenza, insurance companies and banking foundations – have progressively increased their exposure to private equity, private debt, infrastructure and real estate, attracted by the prospect of enhanced returns, portfolio diversification and access to the long-term growth of the real economy.

Today, however, the debate surrounding private markets is changing. The Italian institutional investment community is debating how these allocations should be structured in an environment characterised by regulatory change, geopolitical uncertainty, evolving liquidity requirements and increasing investor sophistication.

Regulation is reshaping portfolio construction

Beyond market dynamics, regulatory developments are increasingly influencing how Italian institutions approach private markets. The ongoing reform of the Italian pension system represents one of the most significant developments for the industry in recent years. The objective is clear: increase participation, improve flexibility for members and facilitate mobility between pension arrangements.

While these objectives are broadly positive for the development of the Italian pension system, they also create new challenges for institutional investors.

Historically, many Italian pension funds and pension foundations have been able to invest with exceptionally long time horizons, largely insulated from short-term liquidity requirements. The new regulatory framework places greater emphasis on flexibility, portability and member choice, inevitably increasing attention on liquidity management and portfolio construction. Therefore, many investors are reviewing the role that open-ended, semi-liquid and evergreen private market structures may play within their portfolios.

“The ultimate test of any pension reform should not be the liquidity of pension funds’ investment portfolios, but the adequacy of the benefits ultimately received by the member at retirement”

However, investors are debating whether these structures may unintentionally encourage shorter-term portfolio construction approaches that are not fully aligned with the long-term nature of retirement savings.

For pension funds, the ability to access illiquidity premiums, support productive investments and participate in long-term value creation remains a key component of delivering sustainable retirement outcomes. The challenge for policymakers and investors alike will be to strike the appropriate balance between flexibility and investment efficiency.

The ultimate test of any pension reform should not be the liquidity of pension funds’ investment portfolios, but the adequacy of the benefits ultimately received by the member at retirement. Regulatory changes may influence how investors access private markets, but they should not fundamentally alter the economic rationale that makes long-term illiquid investments attractive in the first place.

Long-term liabilities require long-term thinking

Italian pension funds benefit from having a long investment horizon. Their liabilities are often measured in decades rather than quarters. This naturally raises an important question. Why should an investor with a 30- or 40-year liability profile sacrifice part of the illiquidity premium in exchange for a degree of liquidity that may rarely be required?

For smaller institutions, liquidity management can be a genuine challenge. Limited internal resources, governance constraints and operational complexity may justify allocating part of a portfolio to semi-liquid structures. For larger and more sophisticated investors, however, a different solution may exist.

The experience of some of the largest global pension plans and endowments suggests that liquidity management is often achieved not through more liquid vehicles, but through better portfolio construction. Well-diversified, multi-vintage programmes for example, built consistently over time, can generate increasingly predictable distributions and significantly reduce the liquidity burden associated with private market investing. For long-term investors, this may prove a more efficient solution than structurally reducing exposure to illiquidity premiums through semi-liquid or evergreen vehicles.

The objective should not be to make private markets look and behave more like public markets. The objective should be to harvest the unique characteristics that private markets can offer over the long term. In many cases, evergreen and semi-liquid vehicles may represent useful complementary tools within a broader portfolio. However, they should not necessarily replace traditional closed-end strategies that continue to provide access to some of the most attractive sources of long-term value creation.

From asset allocation to portfolio construction

Perhaps the most significant evolution among Italian institutional investors is that the discussion has moved beyond asset allocation.

Until five years ago, the primary question was how much capital should be allocated to private equity, private debt, infrastructure or real estate.Today, the conversation is considerably more sophisticated. Investors increasingly focus on portfolio construction decisions such as closed-end versus evergreen structures, global versus regional strategies, hedged versus unhedged exposure, core versus value-add investments, and beyond. This reflects the growing maturity of the Italian institutional market and the increasing sophistication of investment teams.

The challenge is no longer gaining access to private markets. It is constructing portfolios capable of delivering attractive long-term returns whilst managing liquidity, governance and regulatory constraints efficiently.

Infrastructure: a strategic allocation in a new geopolitical era

If liquidity has become one of the most debated topics, infrastructure remains one of the most attractive asset classes for Italian institutional investors. Over the last three years, infrastructure investing has moved beyond traditional themes such as inflation protection and stable income generation. Today, infrastructure sits at the intersection of several structural trends, including energy security and the energy transition, digitalisation and artificial intelligence, supply chain resilience and strategic autonomy. Geopolitical developments have reinforced the strategic importance of infrastructure investments across Europe.

Institutional investors increasingly recognise that infrastructure is not merely a financial asset class but a strategic enabler of economic resilience and competitiveness.Within this context, investors are becoming increasingly selective regarding the type of infrastructure exposure they seek.

The Return of the mid-market

One of the most interesting developments in recent years has been the growing interest in global and European mid-market infrastructure.As infrastructure funds have grown larger, many investors have begun questioning whether the best opportunities remain concentrated in mega-transactions.Increasingly, attention is shifting towards the mid-market segment.

“Many investors now regard mid-market infrastructure as one of the few areas where alpha generation remains achievable in an increasingly competitive environment”

Several factors explain this trend. Mid-market transactions often provide lower entry valuations, greater operational value creation opportunities, larger pools of potential buyers at exit and better alignment between managers and portfolio companies. Most importantly, they frequently offer stronger exposure to the growth and transformation of the real economy.

Many investors now regard mid-market infrastructure as one of the few areas where genuine alpha generation remains achievable, even in an increasingly competitive environment. At the same time, managers with genuinely global investment platforms appear increasingly well positioned to generate value.The ability to source opportunities across multiple geographies, leverage procurement capabilities, transfer operational expertise and allocate capital dynamically across regions has become an important differentiating factor. In contrast, managers focused on a single market may face greater exposure to local economic slowdowns, regulatory changes or geopolitical developments.

Global platforms and currency management

Another recurring theme among Italian investors is the growing preference for global infrastructure strategies combined with effective currency hedging programmes. The experience of recent years has demonstrated that strong operational performance can be significantly affected by foreign exchange movements. Several investors have seen attractive underlying investment returns partially eroded by currency fluctuations. As a result, currency hedging has become a critical consideration during manager selection.

Today, many investors view euro-hedged structures not as an optional feature but as an essential component of portfolio construction. This preference has naturally favoured managers with truly global platforms capable of implementing sophisticated and efficient hedging programmes across multiple regions. For many institutional investors, currency management has become almost as important as manager selection itself. The objective is no longer simply to access global opportunities, but to do so whilst preserving the economic value generated by the underlying assets.

Evolving debate

Private markets remain one of the most compelling opportunities available to long-term institutional investors. However, the debate is evolving. The key challenge is no longer gaining access to private markets. Rather, it is understanding how different structures, strategies and asset classes fit within increasingly sophisticated portfolios.

Open-ended, semi-liquid and evergreen vehicles undoubtedly have a role to play. They can provide flexibility, facilitate portfolio management and improve operational efficiency. Yet they should be viewed as complementary tools rather than substitutes for traditional private market investing. For investors whose liabilities extend decades into the future, the objective should not be to replicate the characteristics of public markets. Instead, it should be to build resilient portfolios capable of capturing illiquidity premiums, generating alpha and supporting long-term economic growth.

The greatest risk for long-term investors may not be illiquidity itself, but rather the temptation to compromise long-term value creation in pursuit of short-term flexibility.As the industry continues to evolve, investors would do well to remember that the primary purpose of private markets is not to provide liquidity, but to generate superior long-term outcomes. Maintaining that discipline may prove to be one of the defining characteristics of successful institutional investors over the coming decade.

Laura Carpi is founder and CEO of 3peaks Consulting, an advisory business focused on private markets