Italian pension funds are strengthening collaboration by pooling assets to cut costs and share expertise through investment consortia, a model expected to become more sophisticated as assets grow.
Pooling assets helps create “a mandate of significant size”, reducing setup and management costs, including fees, said Luca Ruggeri, director general of Fondo Gomma Plastica.
Larger mandates also attract qualified domestic and international managers that would otherwise be uninterested in the limited commitments individual schemes can make, he added.
Ruggeri said joint work on investment projects allows funds to share ideas and expertise while reducing the likelihood of error and reputational risk.
“My personal hope is that this working model will extend to new asset classes and other funds, to gain experience in new asset classes and increase the critical mass that can be put to work,” Ruggeri noted.
Fondo Gomma Plastica joined pension funds Pegaso, Previmoda, Fopen, and Foncer, to invest in private equity through the ‘Progetto Iride’ (Project Iris), in private debt through ‘Progetto Zefiro’ (Project Zephyr), in infrastructure through project ‘Vesta’, and in Italian small and mid-caps, and venture capital.
David Galliano, director general of Foncer, said such collaborations generate synergies between schemes. For example, in small and mid-cap investing, the funds undertook specific work to benefit from tax incentives and plan to engage with portfolio companies.
“This brings you a bit of know-how from everyone on these topics,” Galliano said.
Ruggeri added that successful execution requires alignment on asset classes and strategic asset allocation, as well as synchronisation across participating schemes.
“All steps in the process must also be synchronised across the different [pension] funds,” he said.
Greater sophistication ahead
Financial advisory firm Prometeia has supported all private market consortia involving around 20 pension funds and more than €2.5bn in assets.
In most cases, said partner Andrea Nanni, the projects involved small to medium-sized industry-wide pension funds starting almost from scratch, enabling access to private market strategies even with modest commitments.
On performance, Nanni said it remains too early to draw firm conclusions.
“In any case, the so-called j-curve has been largely exceeded and, for example, private equity portfolios with longer vintages, for example, in the Iride Project, have already recorded double-digit IRRs (Internal Rate of Return),” he added.
Prometeia has also contributed to public-private initiatives involving pension funds and Cassa Depositi e Prestiti (CDP).
The presence of an anchor investor outside the pension sector helps mitigate concentration risk, which for pension funds also carries regulatory constraints.
Italian pension funds cannot hold more than 25% of the capital of a single alternative investment fund.
“If the anchor investor is a public and institutional entity, as in the case of CDP, there are also other benefits: substantial elimination of reputational risks, but also the mitigation of operational risks, since this type of investor is particularly demanding towards the portfolio manager,” Nanni explained.
Looking ahead, pension fund assets are expected to grow further, supported by the introduction of auto-enrolment from July.
This is likely to drive increased allocations to private markets, with a stronger domestic focus.
“On the one hand, new [financial] resources will need to be committed, and on the other I expect greater sophistication in allocations, with projects including thematic ones, for example energy or digitalisation, that require a ‘systemic’ dimension,” Nanni said.
