Italian asset management association Assogestioni is calling for the development of a range of “institutional vehicles and offerings” suited for private equity investments of pension funds and other institutional investors, to fend off competition from foreign investors, said Ugo Loeser, member of the association’s presidential committee.

The institutional investment market needs to grow to give investment opportunities to those that raise money from pension funds, Loeser added, speaking before the Italian parliamentary committee investigating pension funds’ investment policies.

Private equity firms such as KKR, Bain Capital, and Advent offer investment products for the California State Teachers’ Retirement System (CalSTRS), which “buys a product meeting the investment objectives of [its] members”, Loeser said.

Only a minor share of private savings in Italy is invested in companies’ equity, with holdings mostly in the hands of foreign investors that have spotted how appealing the Italian economy is, he said, referring to KKR’s interest and potential purchase of Telecom Italia’s fixed-line network, and Canada Pension Plan Investment Board’s property investment into Milano Innovation District (MIND).

“Private equity funds that have two-thirds to three-quarters of their assets coming from pension funds sit at the table [to discuss taking over] strategic assets,” he said.

Pension funds in Italy have started to invest in the real economy through consortia or in partnership with Cassa Depositi and Prestiti (CDP), and Fondo Italiano d’Investmento. Assogestioni hails the role of both institutions to partner with pension funds lacking at times know-how to invest in private assets.

The association is, however, proposing to boost assets in second pillar pension schemes by introducing a form of automatic enrollment based on ‘silent consent’, circumventing risk-adverse ‘Garantito’ sub-funds as a default option, introducing flexibility in the payout phase to keep assets invested during retirement.

Loeser said that 38% of pension funds’ members in Italy opt for a ‘Garantito’ sub-fund, which guarantees payback contributions, but erodes opportunities to achieve returns on investments.

He noted that severance pay (Trattamento di Fine Rapporto, TFR) channelled towards the first pillar retirement system – Istituto Nazionale di Previdenza Sociale (INPS)  –could be diverted toward supplementary pension schemes.

“We could channel €30bn per year toward supplementary pension [schemes],” he said.

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