Progetto Zefiro (Project Zephyr), a partnership of four Italian industry-wide defined contribution (DC) pension funds, has selected StepStone Group to invest in private debt through an Alternative Investment Funds (AIF) strategy.

The private debt manager will invest over a period of three years and in seven AIFs. It will allocate 50% of the commitment in the first year in two investments, 30% in the second year in three investments, and 20% in the third year in two investments – investing in a total of 200-250 companies, according to a statement.

It will invest mainly in the European Economic Area, with a focus on domestic markets. The allocation may further diversify towards the North American market, it said.

The investment strategy will focus on corporate direct lending, senior secured or unitranche, while other strategies might be an option.

“Private debt is one of the logical options in private assets to diversify a portfolio that is still strongly characterised by fixed income, which is experiencing a lasting phase of very compressed interest rates,” Andrea Mariani, general director of Fondo Pensione Complementare Pegaso – the pension fund for employees in the utilities sector – told IPE.

The private debt consortium includes four industry-wide pension funds – Fondo Gomma Plastica, Fopen, Pegaso and Previmoda – committing a total of €215m to Project Zephyr.

The private debt manager can also invest in its own funds or third party funds, on the primary, secondary and co-investments markets.

StepStone will have to take into account ESG standards to select investments in order to reduce the overall risk for the portfolio.

The consortium solution

The group of four pension funds partnering in Project Zephyr have also launched another initiative, called ‘Progetto Iride’ (Project Iris), to invest in private equity.

Consortia help Italian pension funds reach a certain size of financial resources for investments, optimise costs, and strengthen expertise in private markets, Mariani said.

“Combining the size of the amount invested, diversification and [finding] the best opportunities to invest in private markets can be an unsolvable problem for a significant part of contractual pension funds [in Italy], while a common path can [help to] overcome this obstacle,” Mariani explained.

Investing in private markets require specific resources, also “the selection and monitoring phase [of the investment] can involve additional costs” that can be a burden for one pension fund, but “become more sustainable if shared with other [funds]”, he added.

In a consortium, discussing how to invest in private markets reinforces “the process of growth of specific skills” necessary to allocate in those asset classes, which is “an aspect that should be carefully evaluated” even if it may appear less evident than other elements of a partnership, Mariani said.

Italian pension funds may decide to build up further consortia in the future if the benefits are deemed worth to an extent that justifies establishing a common but “undoubtedly more demanding path”, he concluded.

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