Italy’s PIR funds: Capitalising on new instruments
Italy’s budget law for 2017 has opened the door to asset managers to create long-term Individual Savings Plans (PIR, in Italian) benefiting from tax incentives to encourage savers to invest in small and medium-sized Italian firms.
The new plans – the Italian equivalent of the French plans d’épargne and the UK Individual Saving Account – can be sold as mutual funds, discretionary accounts, life policies or security deposit accounts carrying full exemption from 26% income tax if savers stay invested for at least five years.
Created as an alternative way to fund small and mediumsized Italian firms, a role traditionally held by the banks, these PIR plans are aimed at retail investors resident in Italy who can invest a maximum of €30,000 per year and up to €150,000 over five years.
Restrictions on the composition of investments in PIR plans imply that at least 70% of assets must be invested in financial instruments (equities or bonds) issued by Italian and/or foreign companies (EU and EEA) permanently established in Italy under the domestic fiscal regime. Of this 70%, at least 30% (or 21% of total investable assets) must be in Italian small and mid caps not included in the main index (FTSE MIB).
“This means that PIR will have a strong domestic bias, requiring active management and expertise of Italian small and mid caps, an interesting but little explored universe,” says Guglielmo Manetti, general vice-director of Intermonte Advisory e Gestione. “We believe that domestic fund managers, with proven Italian market expertise, will have the lion’s share of this new market,” Manetti says.
With fund managers of active PIRs expected to charge management fees ranging from 1.25% to 1.35% according to the local consumer association Aduc, the business potential is evident. According to Italian law firm Nctm, the introduction of PIRs may lead to the creation of at least 20 new asset managers or the expansion of the Italian desks of existing asset managers.
Although some Italian asset managers such as Eurizon Capital have backed the new investment formula as an instrument that benefits savers, Italian businesses and the financial system, PIR funds have also sparked criticism. “Consumers are bound to flock to the PIR due to the wellpublicised fiscal benefits. But instead of being the safe-haven that consumers are expecting it is a high-risk investment, Capitalising on new instruments
Asset managers in Italy can now establish so-called PIR funds: taxexempt individual investment plans with the aim of channeling family savings to Italian businesses. Alicia Villegas reports
similar to stockpicking, and the main winner will be the banks,” says Paolo Galvani, co-founder and chairman of Italy’s Moneyfarm.
Galvany says PIR funds may be more suitable for institutional investors that specialise in the Italian market, as they are “quite complicated” products, so providers will need to ensure that they are properly explained to consumers.
He also notes that PIRs only offer exposure to Italian companies, “which means an investor will be very exposed to Italy-related risk”.
LONG TERM COMMITMENT
On the other hand, Amir Kuhari, head of Sales Asset Management at Kairos, says the suitability of PIRs for riskaverse clients depends on asset managers’ investment proposals.
“PIR limits permit creation of long-only equity products, balanced solutions but also bond strategies,” Kuhari says, adding that the medium-long term holding period for the fiscal benefit may reduce volatility.
Intermonte’s Manetti adds: “PIRs will be suitable for investors willing to have a mid-long term commitment to the Italian small-mid caps segment. This is a segment offering lower volatility than larger European equity markets, but still a higher risk that other lower risk assets.
“This is partly counterbalanced by the very appealing tax break, and pure equity exposure can be diluted into more balanced products holding lower equity exposure. “In this context, we believe that the market will provide ample offers with various degrees of volatility suitable for risk-averse clients still willing to take advantage of a significant tax benefit,” Manetti concludes.