ALTERNATIVE PIR FUNDS: THE CAVALRY IS COMING

Investire | February 2021

Not unlike cavalry, alternative PIR funds (or Individual Savings Schemes) have come to the rescue of ordinary PIR funds. In fact, a series of stop-and-gos has made the launch of ordinary PIR funds quite difficult. 

The PIR funds saga began in 2017. The aim was supporting real economy through the Italians’ large stock of savings. The advantage: tax cut on profits derived from capital gains and PIR dividends, as long as the investment is not realized before 5 years. 

The market took advantage of this opportunity and, involving networks and asset managers, gathered 20 billion euros. In 3 three years’ time, the amount is expected to reach 50 billion. This required that at least 90% of resources be invested in controlled stock markets i.e. in liquid products. Result: most of the 20 billion euros collected have been invested in foreign titles listed on international markets and in products unrelated to the real economy of our country.

Hence, the limitations introduced in 2018, which hindered the progress of PIR funds: at least 3,5% of investments were to be allocated to companies listed on AIM; another 3,5% was to be allocated to venture capital. In 2020, the 2018 limitations have been replaced by the obligation of allocating 3,5% of investments to financial tools of small-cap companies (thus outside the Ftse Mib and Ftse Mid index of Borsa Italiana or equivalent indexes of other controlled markets). 

Launched in May 2020, alternative PIR funds were welcomed with new tax incentives in 2021, tax credit in case of capital losses up to 20% for investments made in 2021 and total relief on capital gains for those who hold products for 5 years. 

The Rilancio decree includes high investment thresholds (150.000 euros a year) and different obligations (at least 70% of the overall value of the plan can be invested in shares, bonds, both listed and non-listed, loans and credits issued by Italian PMIs)

A Finer survey commissioned by ASSOGESTIONI carried out a few weeks after the launch of alternative PIR funds highlighted that the level of interest towards PIR funds grows with the size of the client portfolio (the survey involved 1.600 end investors, 1.000 financial professionals – financial advisors and private bankers – and 100 fund selectors)

Of course, alternative PIR funds have to be promoted among clients – the level of awareness is still quite low (less than 10% among end investors and a little over 50% among intermediaries).

Alternative PIR funds have two strong points: tax exemption and the focus on Italian and European PIR funds. They also have one weakness: risk. 

The average investible amount is connected to the size of the portfolio – it ranges from a few thousand euros a year for mass market clients, to the maximum amount (€ 150K) for private clients. The percentage of alternative PIR funds in each portfolio varies from 1% for mass market clients to 10% for private clients. 

These are illiquid investments that may produce good returns; however, they are directed mainly at institutional investors or very wealthy end investors, with an above average level of risk propensity and a medium to long time horizon. 

Provided that the level of risk, the opportunities and the conditions of use are well understood, alternative PIR funds could become a useful tool accessible to the rest of the population.

Under these terms, alternative PIR funds may be profitable both to Italian savers and to the economy of the county. And we know how much we need that. 

Nicola Ronchetti

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