Inarcassa, the pension fund for self-employed engineers and architects in Italy, is considering a review of its strategic asset allocation to increase its exposure to illiquid asset classes and infrastructure.
In a statement, the pension fund said it is examining the possibility of increasing investments in illiquids with a particular focus on Italy, increasing the correlation with the country’s economic growth, it added.
In the future the scheme could decide to cut its exposure to equities, compared with the current strategic asset allocation target of 22.5%, but keeping Italian equities in its portfolio.
Under the current strategy, the scheme also targets a 38% allocation of its total assets to fixed income, 18.5% to real estate, 17.5% to absolute return and real investment strategies, and 3.5% to cash.
The next strategic asset allocation, instead, could lead to wiping out liquid alternative investments from the scheme’s portfolio. According to Inarcassa, liquid assets are less efficient than other investment classes.
The upcoming asset allocation review should increase expected returns, keeping risks unchanged, increasingly looking at sustainability, it said.
The pension fund’s board of directions has proposed a review of the scheme’s strategic asset allocation in light of a changing market environment, and looking at the results of the integrated analysis from an asset/liability management (ALM) perspective, it said.
Inarcassa’s assets under management stood at €13.2bn at current market value at the end of September, in line with the previous month despite declining bond and stock markets, thanks to a significant flow in terms of contributions, and an hedge to equity risks put in place at the end of July.
This year, the board of directors have already reviewed investment opportunities on both bond and equity markets according to targets set by the scheme’s strategic asset allocation, confirming the exposure to equities, and investing a further €150m in government bonds.
Moreover, the pension fund has approved new commitments of close to €60m for private equity, private debt and infrastructure investments in Italy.
The scheme has also decided to increase directly held equity investments in Italian private banks to €200m to benefit from the increase in interest rates.
At the end of the year, Inarcassa held equity investments in Banco BPM, Intesa SanPaolo and Banca Monte dei Paschi di Siena, making up 22% of its equity portfolio.
The gross operating result in the first nine months of the year remains positive and equal to approximately 3.8%, down from 5.4% recorded in August.