Sections

Italian pension fund to make first foray into private equity, real estate

Related images

  • Italian pension fund to make first foray into private equity, real estate

ITALY - Italian pension fund Fondenergia is planning to implement a new asset-allocation strategy this summer that will open its portfolio to alternative investments for the first time.

Alessandro Stori, general manager at the €1bn fund, said Fondenergia's modifications came as part of broader review by all Italian pension funds, which occurs every three years.

"Our current asset allocation was agreed by the board of directors in 2009 and implemented in 2010," he told IPE.

"Even though we are not looking to change our strategy drastically, it is time for us to add some modifications with the view to diversifying our portfolio."

In a previous interview with IPE, Stori explained that Fondenergia would adapt its investment strategy according to the new pension reform.

"The fact the Italian government is seeking to increase by at least four years the minimum legal retirement age in future means the substitution rate will increase significantly," he said at the time.

"As a second-pillar scheme, our goal is to introduce a substitution rate that comes to complement the one introduced in the first pillar. Our aim is, therefore, to maintain that substitution rate at around 100%."

Fondenergia's portfolio is currently 70% invested in inflation-linked bonds (93%) and cash (7%) and 30% equities.

Roughly two-thirds of the equities portfolio is invested in Europe, with the remaining third in North America.

The Italian pension fund is now seeking to reduce its allocation to those two asset classes in order to invest in real estate and private equity.

"We will allocate no more than 5% of our portfolio to each of those asset classes, bringing our allocation to alternative assets to 10% in total," Stori said.

"This strategy will impact our bond and equity pots slightly as a result. To give a broad picture, we can say that the 5% invested in real estate will be directly taken out from our inflation-linked bonds portfolio, as those products pursue the same goal to protect our fund against inflation risk.

"In the same way, the 5% allocated to private equity will result in a decrease in public equity investments."

However, Fondenergia's first foray into alternatives is unlikely to go beyond real estate and private equity due to current Italian legislation.

The country's investment law for pension funds, implemented in 1996, still represents one of the main constraints concerning investments in non-traditional assets.

The regulation allows pension funds to invest only a small percentage of their portfolios in alternative assets and prohibits exposure to hedge funds and infrastructure.

The Italian pensions watchdog (COVIP), which has been looking to revise the law, is expected to implement a number of changes to the law before year-end.
 

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2498

    Asset class: Fixed Income Investment Grade.
    Asset region: Global Developed Markets.
    Size: $50m.
    Closing date: 2019-01-07.

  • DS-2499

    Closing date: 2019-01-02.

Begin Your Search Here