They were created with the aim of directing the savings of Italians towards small and medium-sized companies and resulted in a significant bounce in share prices. In the space of a year, they have generated nearly €11 billion and by 2021 it is expected that associated financial instruments will be worth roughly €60 billion. It’s time to take stock of how the Individual Savings Plans (PIRs) have performed since their launch in the 2017 Italian Budget.
The financial picture
The first far-reaching report on the performance of this new managed savings instrument is entitled « Individual Savings Plans (PIRs): effects on the demand and supply of capital on the Italian stock market » and has been produced by Intermonte Sim in collaboration with the Polytechnic University of Milan. The document provides a snapshot of the impact of PIRs on the Italian stock exchange, with a particular focus on the price and performance of listed shares, exchange volumes, the liquidity of the entire market and primary market stimulation through new IPOs. According to Assogestioni, in their first 12 months PIRs drove the movement of €10.9 billion (a figure way above expectations), with funds of that type recording performance of over 30% above average. According to estimates, the PIR industry could generate revenues of over €60.1 billion by 2021, of which at least €11.5 billion will benefit small to medium-sized listed companies. It all adds up to a veritable boom whose explanation lies in the defining characteristic of the PIR model: tax exemption.
Tax breaks
Ever since they were dreamt up, PIRs have enjoyed beneficial tax status, with no tax levied on capital gains, dividends, inheritance or gifts for anyone who keeps their investment for at least five years (with a maximum investment limit of €30,000/year per PIR). The other limit that must be adhered to in order for investors to enjoy the benefits is that individual investors must not exceed €150,000 in investments in PIRs.
The effect of PIRs on the stock exchange
If we consider the Italian equity securities in which PIRs were able to invest in 2017, the increase was on average between 12% and 18%. The most positive effects were felt by small to medium-sized listed companies, who enjoyed rapid growth. The STAR segment doubled (increasing from €977 million in 2016 to €1.77 billion in 2017), while AIM Italia saw growth of six times (the average monthly trading volume increased from €27 million in 2016 to €165 million in 2017). The only shares to suffer as a result of the PIR effect were blue chip companies listed on the Milan stock exchange, where trading volume fell by 8% on the previous year, to the extent that people even began talking of PIR « cannibalisation ».
The absent IPO boom
The study produced by Intermonte and the Polytechnic reveals another important piece of data: that it is too early to establish a cause-and-effect relationship between the introduction of the PIRs and new IPOs. In 2017, there were eight new registrations on the main stock exchange, which wasn’t all that different to previous years. There were 23 on AIM, 16 of which in the last quarter, which was partly down to the phenomenon of the Special Purpose Acquisition Companies (SPACs), i.e. investment vehicles created with the specific purpose of generating capital on the market by listing their shares on the stock exchange. However, this was not sufficient to accommodate the huge flow of money created by PIRs without creating dangerous market distortions.
Room for improvement
However, the encouraging performance of PIRs does not erase a number of problems, including the issue of the scarcity of SMEs listed at Piazza Affari for PIRs to invest in. The strong demand for such shares led to a significant increase in the share price of the SMEs listed on the stock exchange in the space of a few months. One solution could be the one put forward in the 2018 Budget, according to which the government decided to open up the PRI market to the real-estate sector, though it must be said that there are only five listed real-estate investment companies and only 12 real-estate companies in total.