Developing a modern universal supplementary pension system and expanding long-term investment instruments are two fundamental – and closely related – steps that should be a focal point of intelligent, far-sighted political discourse.
They will decide the Italian economy’s ability to rise to its most important challenge: changing the way in which Italian businesses are financed towards a more contemporary system in keeping with the times.
In particular, we need to transition from the current bank-centric model to a system in which deeper capital markets and investment solutions focused on the longer term are capable of intercepting and channelling the savings of Italian households into Italian enterprises, thus driving the recovery.

Asset management from baby boomers to millennials

Pensions and management of pension-related assets are subjects that I have been thinking about since university, when I began a long study of the investment strategies of U.S. pension funds, at a time when in Italy banks were practically the only companies to have their own supplementary pensions.
The current demographic trend emerged as early as the mid-Nineties, with the baby-boomer generation gradually nearing retirement, life expectancy increasing, the pay-as-you-go system becoming unsustainable and the difficulty of investing in a way that would cover benefits becoming apparent.
These factors came in addition to the constantly increasing problems faced by government in covering the portion of pension and welfare spending paid for by the general levy, against the backdrop of budgets subject to increasingly stringent stability constraints.

The new real assets in the Italian pension system

In this regard, the report submitted to the Chamber of Deputies in February 2016 on the state of the Italian pension system is very interesting. This is the background for current discussions of investments in long-term assets by occupational and other pension funds, accompanying or often replacing state investment in what are commonly referred to as “real assets”.
“Real assets” are defined as those investments that, in addition to aiming to provide investors with positive returns greater than investments in government bonds or similar securities, meet a social need. Some examples include care facilities for the elderly (long-term care and Alzheimer’s patients), renewable energy and infrastructure.
Considering that supplementary pension funds are currently being called on to make such investments, and this role will only intensify in the future, and because they are often linked to health funds, a priority issue will be healthcare itself, where the state is struggling to allocate additional investments and where the demographic trend indicated above faces us with a series of challenges.
This is the context for Decree 175 of the Ministry of the Economy of 30 July 2015, which grants tax benefits to pension funds that invest in a list of assets that the government regards as a high priority.

Alternative investments, opportunities and growth perspectives in the real economy

The incentive is not a strong one, but it nonetheless represents a first step and is certainly a clear indication of the direction to be taken and the goals to be pursued.
This will also allow the system to begin the process of (positive) disintermediation by banks as the sole funders of long-term investments. It is an important step, above all at this historical time when throughout the Eurozone the financial system is faced with the problem of non-performing loans and the need to raise additional capital following the extended crisis that has struck businesses and households.

In addition, for investors it may represent, in a historical period of zero rates, a sound investment opportunity.
At the same time, the complexity of the investments made both indirectly (alternative investment funds, minibonds, etc.) and directly, by purchasing the assets, will require institutional investors to have an adequate internal or external structure (specialised advisors) to monitor the investments made and the returns earned on these alternative asset classes.

It will be a long process and will require even stronger support from the authorities but it could contribute significantly to Italy’s growth.