ITALY - The new version of Italy’s Law 703, which sets out the investment framework for pension funds, presents a number of opportunities for local schemes but fails to reduce the risks of their investments, according to one local pension fund.

Fabio Ortolani, president at Fonchim - the complementary contribution pension fund for the chemical and pharmaceutical industries - acknowledged that the revised law, which was introduced in 1996, would offer new financial instruments and opportunities for pension fund management.

He told IPE, however, that the new version of the Law 703 ignored the need to introduce “boundaries” to reduce investment risk.

“As everybody knows, pension funds are special,” he said. “They have to guarantee the future of people when they reach retirement age, and, for this reason, they need special rules and instruments.”

In March, the Italian ministry of economy launched a consultation process on the new draft regulation for investment rules, aiming to revise the 703/96 decree.

While the previous regulation had allowed pension funds to invest in some alternative asset classes such as real estate and private equity, the revised decree seeks to enable investments in hedge funds and commodities.

Although many pension funds and asset managers have welcomed the move, some have also called on the ministry to reinforce governance rules.

Fonchim - which currently bases its investment strategy on a three-way approach with Line ‘Garantito’ 100% invested in bonds, the line ‘Stabilità’ split between 70% of bonds and 30% of equities and the line ‘Crescita’ invested in bonds (40%) and equities (60%) - is now in the process of revising its asset allocation according to the new Law 703 and market volatility.

Ortolani said: “These two elements have already been taken into consideration by the management of Fonchim regarding the strategic asset allocation recently defined.

“We will therefore seek to increase the portfolio diversification and strengthen some limit on certain asset classes.

“However, the board of the fund will be able to take the most appropriate decisions only when uncertainty surrounding the regulation ends.”

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