Italian pension funds warn members against divestments during market volatility

Italian pension funds are recommending that members keep calm despite negative returns recorded in the first half of 2022 due to a combination of factors including market volatility caused by the war in Ukraine, rising inflation, energy crisis and climate change.

In a statement, Fopen, the pension fund for the employees of energy group Enel, suggested that members avoid emotional decisions that could lead them, for example, to switch sub-fund, therefore cementing losses recorded so far. 

The losses for members become effective only if the position is liquidated by switching sub-funds or withdrawing capital.

Fopen’s sub-funds have recorded negative performances since the beginning of the year, with the Obbligazionario Garantito returning -0.75%, the Bilanciato Obbligazionario - 9.17% and the Bilanciato Azionario -12.37%.

Negative returns resulted from the impact on bonds and the equities of the conflict in Ukraine, the increase in the price of the commodities and inflation exacerbated by the drought in Europe, Fopen added in a statement. The energy crisis and the worsening expectations for corporate profits, the pandemic and economic slowdown in countries like China also contributed to the negative sentiment, Fopen said.

The pension fund added that the situation on the market has not stabilised yet and the future remains unpredictable.

The board of directors is therefore monitoring the strategies of the asset managers through periodic meetings and intervening actively, for example by reducing the weight of equities in portfolios in favour of bonds, and by raising the exposure to US equities. The pension fund has also decided to increase the allocation to private equity, which continues to perform well despite the crisis.

Fopen is conducting a review of its members’ long-term plans, in order to update the asset allocation towards broader diversification, taking into account the fact that the environment is changing, and ultimately to contain the risks, the fund said.

Fondo Pensione Complementare dei Giornalisti Italiani, the second-pillar scheme for journalists, has looked back to crises and periods of distress on the markets, concluding that since the market peak before the crisis between Russian and Georgia in 2008, the debt crisis in Europe, Brexit, the pandemic and the war in Ukraine, the sub-fund ‘medio termine’ has returned 28.3% and the sub-fund ‘lungo termine’ returned 33.2%.

PreviAmbiente, the pension fund for workers in the environmental hygiene and related sectors, has described the first half of 2022 as one of the “worst semesters for the financial markets worldwide”, recommending, however, that members exercise “patience” because in the long term losses can be recovered.

For example, during the financial crisis in 2008 the global equity index fell by 58% against a fall of the Bilanciato sub-fund of Previambiente of 12.5%.

The pension fund recovered the losses in the Bilanciato in two years, and in the five-year period (October 2007-October 2012) generated a total net return of 10.5%, over 2% per year on average, said the fund.

The experience of the past shows that members who remained steadfast in times of uncertainty were able to reap the rewards of the subsequent return to normality on the markets, said Fonchim, the pension fund for the Italian chemical sector.

Assets in the garantito sub-fund of Fondo Astri, the pension fund for workers in the highways, roads, transport, infrastructure and car rental sectors, have decreased from €36.86m in February, when the war in Ukraine started, to €36.21m in June. Assets in the Bilanciato sub-fund fell from €357.63m in February to €328.61m in June, according to figures published by the pension fund.

However, returns for both sub-funds have been consistently positive in the period 2012-2021, except in 2018, when the garantito recorded -1.50% and the bilanciato -1.90%, according to figures published in the pension fund’s financial statement for 2021.

Astri therefore recommends to members to maintain a “balanced approach”, because the downturn came after years of positive returns, and investments follow a long-term trajectory.

In a letter to the members Giovanni Platania, chairman of Fondaereo, the complementary pension fund for pilots and flight attendants, said that the fund has recorded negative performances this year, but positive or negative returns resulting from the management of the assets are temporary, unless members decide to liquidate their positions.

The pension fund will soon tender the mandate for the garantito sub-fund, now in the hands of Amundi, the chairman added.

The performances of the four sub-funds of Laborfonds, the Trentino-Alto Adige/Südtirol regional pension fund, were all negative as of June: linea garantita -0.95%, linea prudente-etica -9.29%, linea bilanciata -10.74% and linea dinamica -13.06%.

The general director Stefano Pavesi noted that new contributions are invested “at the lowest prices”, meaning that for the same amount invested a greater number of shares are bought, and this will allow them “to ride the wave” when the markets recover.

Laborfonds cited another element of uncertainty – political instability, with Italy holding snap elections in September after the resignation of prime minister Mario Draghi. The current phase is abnormal also because there is no asset class protected from the effects of this turbulence, Pavesi said.

For Alberto Broglio and Andreina Colombini, chairman and director of the pension fund of Crédit Agricole bank in Italy, the scenario has become more uncertain with the restrictive monetary policies put in place by the Federal Reserve and the European Central Bank to contain inflation jittering the markets.

The pension fund has further intensified monitoring activities on the performance of the assets managed, on financial risks and investment strategies, it said in a note.

Asset managers are containing losses maintaining a certain level of risk, in line with the investment policy, while the number of members liquidating positions is limited, the fund added.