ITALY - The financial crisis has shown the relative strength of the country's second pillar pension system in comparison with other forms of savings, Schroders' head of distribution for Italy Luca Tenani has said.
In an interview with GP, Tenani said Italian schemes came out relatively unscathed from market turmoil and, as a result, they became more popular compared to other forms of private investments.
He explained: "Several pension funds did not change their asset allocation, therefore they did not run the risk of not being able to capture the market rebounds. A good number of them, following Covip's instructions, increased their cash exposure during the crisis to more than 20%, which was the limit previously prescribed, and then returned to be almost fully invested when markets started to rebound."
According to the latest annual report by pension watchdog Covip published in June 2009, contractual pension funds - those implemented at company or industry-wide level - lost 6% in 2008, while open pension funds - those offered by providers such as banks and insurance companies for a generic group of participants - lost 14%. Both are part of Italy's second pillar pension system.
The report noted that pension funds' losses in the majority of OECD countries were around 20% or more for 2008.
In addition, savers who had money invested in mutual funds or other retail financial products often suffered higher losses than those incurred by second pillar schemes.
Covip's preliminary data for 2009 published in January showed contractual pension funds gained 8.5% last year, while open pension funds gained 6.5%. (Global Pensions, January 27, 2010)
Tenani said following the crisis schemes are now increasingly investing in passive mandates, in particular where it is possible to choose specific geographical exposure.
He added: "Investment themes such as socially responsible investment and lifecycle are gaining ground, but I believe we still are at very early stages. Nonetheless these themes are on the radar of both pension funds and providers."
In a separate interview, Prometeia head of pensions advisory services Andrea Nanni told GP first pillar schemes (casse di previdenza) have increasingly looked for liability driven investments approaches following losses incurred in the crisis.
Nanni said that both equity and bond markets have been very volatile since 2003 and since 2008 they had to start to write down their portfolios due to market losses.
He said: "The fact that some ended up with portfolios which were insufficient to pay for pension benefits drove them to invest in risk management systems and to review their asset allocation."
He added the demand to consultants for this kind of services continues to increase, as the majority of schemes are too small to have the internal capability to implement risk management services.
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