ENPAM, Italy’s €17bn pension fund for medical consultants, has committed €150m to a venture capital fund investing in early-stage companies within the medical technologies sector.
Principia III raised a total of €160m at its first close, with an ultimate subscription of up to €500m to be invested in around 30 companies. The €150m commitment by the first-pillar fund will be drawn down over approximately five years.
ENPAM said it was making the investment because healthcare was a strategic sector it wished to develop and support, and that doing so would be fundamental to intergenerational sustainability of the fund.
But a spokesman for ENPAM said there were also strong financial and operational reasons to target healthcare provision in Italy.
“Firstly, we believe it is poised to be a strategic and fast-growing sector, because of demographic ageing trends in Italy and Europe.
“Secondly, tight budget policies will likely benefit innovative processes in public healthcare delivery, which is one of the target zones for Principia III.”
He said Principia III was the only venture capital fund with the agenda to invest in this type of company.
The spokesman pointed to manager Principia SGR’s inclusion of Italy’s National Research Council (CNR) as one of its shareholders as “very important”, as it would be able to rely on its relationships with research institutions.
Within ENPAM’s portfolio, the investment will form part of its mission-related holdings – assets linked to long-term sustainability deriving from the medical professions, invested through bonds, equities, private equity and real estate.
The portfolio also includes a further €50m commitment to healthcare, in assisted-living residential health facilities.
The mission-related segment has a maximum allocation of 5%.
Initially, the investment in Principia III will represent over half of ENPAM’s 1% strategic allocation to private equity, although the fund expects to increase the share further.
The remainder of the private equity allocation – 0.4% of the total portfolio – is made up of stakes in five other funds, run by Igi, Quadrivio and Dgpa Sator, and also including a stake in Principia II, which invests in small and medium-sized enterprises in the digital innovation space, mainly in central and southern Italy.
Additionally, ENPAM has holdings Advanced Capital III, Advanced Capital Real Estate and Network Capital Partners, private equity fund-of-funds.
ENPAM’s internal rate of return on its private equity portfolio since inception in 2002 has been around 1.7%. Over the same period, the FTSE Italia Small Cap Index – the nearest benchmark, given the domestic bias of the portfolio – returned -1.0%.
Although ENPAM’s investment forms by far the major share of Principia III, the fund did not see it has a drawback.
The spokesman said: “Venture capital is not well-established in Italy, where bank funding has been the primary conduit and legislators have only recently made it possible for the country’s smaller companies to issue bonds directly.
“So we are willing to be a catalyst through being the first big investor in this fund,” he added. ”Others will follow.”