The Regional Authorities of Trentino-South Tyrol established PensPlan in 1997 in order to promote local second pillar pension schemes.
The project aimed at fostering the setting up of local pension funds, supporting the coordination of their activities and the implementation of suitable financial solutions and risk monitoring services. In the context of a gradual reduction in public pension benefits, PensPlan’s mission aimed at offering a dignified retirement income to local residents through its pension funds and investment products.

In the last decade, local pension funds in Trentino–Alto Adige/South Tyrol grew both by number of participants and by assets, becoming important asset owners and institutional investors. This trend was reinforced in 2007, when employees were allowed to send their indemnity insurance (apx. 7% of gross wages) to complementary pension schemes instead of keeping it within their employing companies. Such assets had always worked as a strategic source of gross self-financing capital and their sudden withdrawal further limited financial flexibility to Italian companies in a time when the credit crunch had already started to reduce funding resources.

Therefore, Italian pension funds started to look for solutions on how to arrange the partial backflow of pension fund contributions to the local economy, instead of investing their total assets on national and international markets or in government bonds. This challenge was made even more complex by the very strict investment limits established by the Italian regulator on the pension fund industry (Covip) that “de facto” does not allow pension funds to invest in not quoted and/or illiquid securities, in spite of the fact that a large part of Italian enterprises are small and medium sized and rarely issue financial instruments.

An innovative solution

PensPlan Invest SGR S.p.A., specialized in asset management as well as in the provision of strategic advice to preserve continuity to the PensPlan project, has been the first asset manager in Italy to develop and implement a viable solution to convey local pension funds’ assets to local investments. In 2010 it instituted PensPlan SICAV Lux, a UCITS compliant open-ended fund incorporated in Luxembourg. One of its subfunds, the “Local Investment Fund”, aims at providing “its investors with capital appreciation through a portfolio consisting of fixed and floating rate Euro denominated government and corporate debt securities and to a minor degree in equity related titles. The sub-fund assets will include bonds issued in small size, and private placements of regional and provincial governments, their subsidiaries and agencies, as well as of local companies.”

As a UCITS compliant subfund, Italian pension funds are allowed to invest part of their financial resources in this vehicle. At the same time, they do not have to cope with issues such as liquidity risk of local financial instruments, market / fair value evaluations, portfolio diversification etc. All these aspects are solved by the UCITS compliant Sicav since, by law, it must guarantee a high degree of liquidity and diversification. Furthermore, its management company, depositary bank and auditor in Luxembourg add further levels of independent control in order to avoid potential mismanagement.

The subfund currently conveys up to 60% of its assets to the economy of the Region Trentino – Alto Adige/South Tyrol in Italy, both via time deposits with local banks and bonds issued by local companies. At the time being, a first not listed equity investment is being discussed and should be finalized soon.

In order to increase the effectiveness of the subfund, PensPlan Sicav Lux entered an agreement with a market maker on the Luxembourg Stock Exchange. This broker helps the investment manager to trade less liquid local bonds increasing in that way the overall liquidity of the subfund. Furthermore, PensPlan Invest SGR S.p.A. has built close relations with all the potential issuers of the Region in order to perform more effective due diligence and credit risk analyses. In addition, close relations with finance departments of various local banks increase mutual trade flows, supporting, inter alia, liquidity on the secondary market. PensPlan Invest SGR S.p.A. is also in close contact with the most important multilateral trading facilities (MTF) in Italy such as MTS Italy, EuroTLX, etc. with the purpose of introducing local bonds on these platforms, increasing visibility to local financial instruments.

PensPlan Sicav Lux – Local Investment Fund started at the end of September 2011 and, as of today, 4 local pension funds are invested.

It has contributed to an increasing interest in local investments among complementary pension funds, which are gradually adding this asset class to their strategic asset allocation.
The innovation driven by PensPlan Invest SGR S.p.A. has been acknowledged at a European level by AIEP (The European Association of Paritarian Institutions). AIEP is strongly committed to fostering local development and, for the time being, PensPlan SICAV Lux - Local Investment Fund is one of the very few vehicles available in Europe through which pension funds are provided the possibility to invest on local economy.

By Florian Schwienbacher, Direttore Generale Di PensPLan