Italian pension funds have been caught in the crossfire of current geopolitical tensions suffering the consequences the war in Ukraine bears on global equity markets.

Assets under management at Inarcassa, the Italian pension fund for self-employed engineers and architects, fell at the end of February below €13bn as a result of turbulence in the stock market and outflows of benefits, it said last week.

The pension fund recorded negative returns at current market values of approximately -3%. Its investment portfolio showed resilience, the pension fund said, because 35% of its assets are invested in private markets including real estate not affected by short-term volatility.

Another 35% of its portfolio is invested in bonds which tend to benefit from greater risk-aversion and the possible consequences of an economic slowdown, and it has a significant exposure to the US dollar, a ‘safe haven’ asset in times of crisis.

Inarcassa´s board of directors met at an extraordinary meeting on 28 February to also decide to increase its allocation to gold that so far has made a positive contribution to its portfolio. Russian assets held by funds in the portfolio have a value of less than €15m, it added.

Volatility in equity markets resulting from the Ukraine invasion and the sanctions imposed on Russia are also having repercussions on Previd, the multi-employer defined contribution pension fund.

Its ‘Linea 2 Bilanciata Obbligazionaria’ sub-fund, with an active total return investment policy and assets worth €161.9m, lost 1.51% since the beginning of the year. Its ‘Linea 3 Bilanciata’, targeting a medium/high investment risk with €323.4m in assets, lost 4.11%, while its ‘Linea 4 Bilanciata Azionaria’ with a high risk investment policy worth €211m, lost 5.76% since the start of this year, it said.

Total assets at Previp stood at €3.2bn at the end of December, an 8% increase in the last year driven by a flow of contributions of €174.4m, it added.

The ‘Garantito’ investment option at Alifond, the second pillar pension scheme for employees of the Italian food industry, posted a -1.51% return on its €211.7m total assets in the first months of the year. The options ‘Bilanciato’, with assets worth €1.44bn, and ‘Dinamico’, worth €77.1m, performed even worse returning -3.90% and 4.46%, respectively, since the start of this year, the pension fund said in a statement.

Alifond´s director Sandro Petrini compared the current geopolitical situation with the COVID-19 crisis, saying that it is necessary to consider the possibility of postponing any requests for pension benefits.

The pension fund for industrial managers, Fondo Pensione Previndai, recorded -4.20% for its ‘Bilanciato’ and -5.07% for its ‘Dinamico’ options as of the end of February, with market negative developments affecting all its investment options, it said.

The supplementary pension fund for workers in the rubber, electrical and related cables and plastics sector, Fondo Gomma Plastica, has a negligible exposure to equities and bonds of companies based in Russia.

The exposure is almost nothing in its ‘Dinamico’ and ‘Conservativo’ sub-funds, and absolutely negligible in its ‘Bilanciato’, but it warned that the war in Ukraine will also have “wider repercussions” both in terms of financial markets and in terms of inflation, aspects that the pension fund constantly monitors.

Future returns

Italian pension funds are advising members to avoid switching investment options as the change could lead to great losses or to missing exploiting better returns in the future.

Investments at Fondo Arco, the pension fund for workers employed in the wood, furniture, forestry, brick and concrete sectors, also suffered from market volatility, and saw a decrease in the value of its assets, particularly in the sub-funds based on the scheme’s investment policy and their risk/return profile.

But it noted that market declines give the option to buy securities at lower prices to benefit from an increase in value when markets rise again.

Fondenergia, the pension fund for the energy sector, is monitoring the situation through its risk management function, president Mario Cribari said in a letter to its members.

Its portfolio has a small exposure to Russian securities, and it has recently been readjusted with counter-cyclical and long-term allocations that can mitigate the risks in time of crisis, he said. It has bought a 1% stake in Banca D´Italia, an investment guaranteeing 4.5-5% returns per year without risks.

Nonetheless, the value of assets held by the pension fund will inevitably be affected by the negative trend and market volatility, Cribari said.

In the last few months its ‘Bilanciato’ sub-fund with €2.21bn in assets brought a -3.30% return, the  €512m ‘Dinamico’ option - 4.40%, and the €267.22m ‘Garantito’ option -0.23%.

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