Over the years, Fonchim, Italy’s second largest industry-wide pension fund has increased its investment fund choices for members, offering as many as four funds. Yet the €2.2bn pension scheme for the Italian chemical and pharmaceutical industries is now considering merging two of its investment lines, says Andrea Girardelli, director of the fund.

Industry-wide pension funds dominate more than 90% of the occupational pension fund market in Italy, according to COVIP, the pension fund regulator. Initially, they offered members a single balanced fund heavily weighted in bonds. As assets grew, so did the number of funds available for members in a structure known as multicomparto. Fonchim had originally started with stabilita. Today, it remains the largest of four available funds with 70% of assets invested in European bonds and 30% in equities. The fund is benchmarked to the Citigroup International Treasury Bond Index one-to-three year and the MSCI World.

Stability above all

Stabilita is by far the most favoured with 92% of assets while the three other investment lines introduced in 2003 have only captured 8% of AUM. “Stabilita has never gone under 90%,” says Girardelli. “The only significant inroad has been made by crescita, which invests 60% in equities and 40% in bonds. This accounts for 5% of AUM.” Members can also choose to invest in moneta or garantito. The scheme plans to combine these last two investment lines as they share an almost identical benchmark, notes Girardelli. “The moneta line has been getting slimmer and so we may fuse it with garantito.”

Last year, moneta returned -7.7% compared to -9.4% for stabilita, -25% for crescita and a gain of 4.4% for garantito. Returns this year into May 31 are positive for all funds, with crescita posting 5%, followed by stabilita (3.6%), moneta (2.6%) and garantito (1.1%). In spite of its loss, stabilita outperformed other European industry-wide pension funds in 2008 thanks to its higher allocation to bonds. Since inception, stabilita has returned 36.8%, crescita 29%, moneta 19% and garantito 7%. All the funds are restricted from investing in hedge funds or fund-of-hedge funds.

“While the financial crisis has impacted our assets, we do not see a significant impact on the behaviour of our members. They go on contributing,” says Girardelli. This may be in no small measure to the performance of stabilita to which the overwhelming majority of Fonchim’s members belong. Indeed, the move to multicomparto in 2003 did not result in a headlong rush into equities, at least not on the part of members, even when given a choice in investment products. This trend is broadly true across the industry, with Italian clients favouring protected products. Last year’s market downturn may further slow Italian investors’ migration to higher risk/reward options. One obstacle is that members cannot be invested in more than one option so that different product-lines cannot be mixed.

While there has been lukewarm demand for more aggressive investment lines, Fonchim has seen its member base grow every year since 1997 (with the exception of last year) as Italy’s pension industry continues to consolidate. At the end of 2008, Fonchim had 162,487  members representing 2,374 companies compared to 65,503 members and 965 companies a decade earlier. Today, Fonchim covers 82% of its industry’s market share. The scheme saw 7,000 redemptions in 2008 compared to 4,000 the previous year. “Our biggest challenge is to reach 100% of our contributors,” says Girardelli.  Regionally, the largest group of adherents is in Lombardy (40.7%), followed by Lazio (16.3%) and Tuscany (8.6%). About 20% of Fonchim’s workforce is above 50 years of age, with 55.7% between 35 and 49.

V.B.