Inarcassa, the Italian pension fund for self-employed engineers and architects, has designed a new strategic asset allocation approach for 2023, increasing its portfolio allocation to bonds by 3%, and reducing equities by 1.5%.
Under the new strategy, the scheme targets a 38% allocation of its total assets to fixed income with the possibility of investing up to7% of its assets in high-yield bonds .
Additionally, the pension fund has opted for investments in emerging market (EM) bonds of up to 4%.
It plans to invest 22.5% of its total assets in equities, with the possibility of investing a maximum of 5% in EM equities.
Inarcassa has reduced its absolute return/real investments by 2% against a slight increase in real estate assets (1%). The exposure to the cash component was also adjusted downwards by -0.5%, it added.
It plans to allocate 17.5% of its assets to absolute return and real investment strategies, and 18.5% to real estate. The cash component is set at 3.5% of total assets.
With the new strategic asset allocation, Inarcassa expects an annual nominal return of 5.4%, and risk in terms of maximum loss on a single year of the 7.6%, it said.
Inarcassa is investing 57.6% of its pension assets abroad and 42.4% in Italy, amounting to over €5bn, including more than €1bn in vehicles channelling funds directly to the real economy or to small and medium-sized companies (SMEs).
In Italy the scheme invests 10.2% of assets in bonds, 6% in equities, 14.8% in real estate, 8.6% in real assets, and holding 2.9% in cash, it said.
The scheme has also decided to integrate a sustainability element in its latest asset allocation strategy, not only through ESG aspects to take into account when making investment decisions, but also in terms of control of risks.
It took into account ESG quality and carbon Intensity as main factors in terms of sustainability, with a close eye to the share of securities pursuing Sustainable Development Goals (SDGs), and identified by Inarcassa’s sustainability policy.
Close to 90% Inarcassa’s equity investments have an ESG/socially responsible investing (SRI) label, over 80% of the allocation to corporate bonds follow sustainable criteria, while a small share of bonds held directly, and high-yield funds remain invested according to “traditional” criteria, the scheme said.
Inarcassa has invested €200m (nominal) in green Italian bonds and €50m in French green bonds between 2021 and 2022, but the share of government bonds in its portfolio is still predominantly held according to a traditional investment approach.
Close to 85% of total investments in infrastructure have an ESG score rating above or equal to single A, while for private equity the percentage drops to around 46%.
The scheme invests €180m according to the principles of sustainability in real estate in Italy, and €600m according to the same criteria abroad.
To date, 60% of total assets are invested directly, and qualified as ‘responsible’ in terms of impact on environment and society (at least rating A), and this share will gradually increase, it added.