Pension funds could have the power to direct new growth in Italy’s markets
Q2 hedge fund letters, conference, scoops etc
Driven by high distributions and attractive returns, the European private equity market has grown by 25% since December 2015. Italy has exhibited particular growth in recent years, with a private capital market centred on small- and medium-sized companies. Rome (70%), Milan (41%) and Torino (9.1%) house the largest proportions of investors in private equity and private debt in the country.
The private capital market in Italy is still developing in comparison to other European countries. Facing significant debt and with employer-unfriendly labour laws causing macroeconomic instability, the Mediterranean country has not been a top priority for investors. This does not mean that Italy is being disregarded by institutional investors, though.
Welcoming New Investors
As shown in the chart below, 87% of Italy-based investors are active in the private capital space. At present, Italian pension funds are focusing on investments through private equity mandates. Pegaso Fondo Pensione, for example, a public pension fund, recently announced it will target buyout and fund of funds strategies through the use of separate account mandates. Although private capital investments require rigorous due diligence in the longer run, many public pension funds are investing in private equity for the first time, drawn to the benefits of portfolio diversification and low correlation to public markets.
Itinerari Previdenziali and Borsa Italiana’s Working Group on Investment in the Real Economy, a recent project1 focusing on identifying best practices and future developments of institutional investment in the Italian economy, has found that while Italian pension funds manage about €300bn of assets, only a small percentage are invested in the Italian economy. While many are still reluctant to invest in Italian companies, some pension funds have taken the lead in this respect. Five Italy-based pension funds (Foncer, Fondenergia, Fondo Gomma Plastica, Pegaso and Previmoda) recently formed a consortium which is looking to place €216mn with a manager2 – the goal is to build a portfolio with significant exposure to Italian companies.
Laying the Foundations
There may be obstacles in Italy’s way, but moving forwards there is a strong case for hope. As the private markets grow in Italy, the pressure is on pension funds to start to diversify their investments. Following a historic high in domestic deals, with over €12bn of private equity-backed buyout and venture capital transactions completed in 2018, Italy’s pension funds could potentially benefit from the boom in private capital investment, and therefore lay the foundations for the future.
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Article by Pav Rehal, Preqin
