Drumming up local business
Judge’s comment: “Powerful risk management model with full transparency, while improving the level of integration between custody and accounting”
Notwithstanding its small structure, Laborfonds is the largest multi-employer and regional defined contribution scheme in Italy that both private and public sectors workers can join. Based in the Trentino Alto Adige (South Tirol) region of northern Italy, the fund has around 115,000 members and total assets of around €2bn.
Laborfonds survived the financial crisis with satisfactory results, helped in one key sense by its innovative development of a look-through risk model that it is complemented by liquidity-risk analysis. The development of the look-through framework came about to enable Laborfonds to take the funds it invests in and analyse how their portfolios are constructed to calculate performance attribution effectively. This means Laborfonds can view each underlying security and asset class within the investment funds it invests in to obtain a better understanding of the risk exposure they imply and how they impact on its portfolios – both overall and at individual investment line level. For a fund of its size, Laborfonds insists this is the most efficient method of evaluating risk to ensure it can offer flexibility, maintain a high level of diversification and generate the necessary economies of scale at low cost in order to maintain its success.
This has given Laborfonds the basis on which to continue to grow and innovate. In the past year or so, one key area of activity has been an in-depth analysis of the strategic asset allocation of each of the scheme’s investment lines to ensure it understands and responds to its members’ needs, while implementing any subsequent adjustments smoothly. This includes complying with official state regulations allowing the Italian government to influence the investments of pension funds.
Recent changes at fund level, however, include opening the Linea Balanciata (balanced) investment line to global and emerging market equities as well as alternative investment classes, including a direct investment in a private debt fund which invests in local small and medium enterprises.
Laborfonds is a lead partner and promoter in the Fondo Strategico Trentino Alto Adige (Strategic Trentino Alto Adige Fund), a closed-ended mutual fund structure that includes two local authorities and is managed by Finint Investments to invest in and therefore support the local economy. Intended for qualified investors, the vehicle serves as an alternative source of financing, where banks are reluctant to get involved, for local developments and projects. Although other regional pension funds in Italy are now adopting a similar model to support their local economies and communities, Laborfonds was the pioneer in this area. This too has been the subject of a strategic asset allocation review, which was quite a demanding exercise given Laborfonds’ small size and to ensure the needs of all parties concerned were met. The result of the exercise a core satellite model based on both passively and actively managed portfolios. The satellite element currently concerns the aforementioned direct investment in a private debt fund as part of the revamped asset allocation of the Linea Bilanciata.
Two other recent innovative projects are a depositary bank mandate and a mortgage savings concept. The depository bank mandate is with State Street Bank and is essentially structured to allow Laborfonds to keep a sustainable account of its net asset values. The rationale behind the development is to achieve a high level of integration and optimisation of the scheme’s custody and accounting operations. The mortgage savings concept, which Laborfonds terms the Bausparen Project, enables members to use the value of their pensions savings with the scheme as collateral for a bank-sponsored mortgage.
Fondo Pensione Laborfonds
Founded in 2000
Defined contribution multi-employer
- Active: 114,311
- Retirees: 26
Market value: €2bn
Performance as a percentage:
- one year: 10.07
- three years: 9.06
- five years: 6.01
- ten years: 4.6
- Largest regional Italian multi-employer fund
- Lead partner in local community and economy investment fund
- Innovative mortgage collateral concept
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