In recent years the government has introduced new instruments to bring the private wealth closer to the needs of Italian SMEs. Among these tools, the Budget Act 2017 has introduced the long-term individual saving plans (the so called Piani Individuali di Risparmio, PIR). Their objective is to channel family savings into long-term investment schemes to encourage the growth of Italian business that need to find an alternative to the traditional banking channel.
Ordinary PIRs can take on different conformations as well as diverse is the composition of their portfolios, including stocks, bonds, ETFs, and current accounts.
It is precisely in the composition of the portfolio that the legislation places restrictions on these instruments, which have been amended several times, until reaching the current conformation:
- At least 70% of the investment portfolio must comprise equity or debt securities issued by Italian companies (or EU companies with an Italian branch)
- At least 25% of this share (or 17.5% of the total) shall be invested in instruments issued by listed companies that are not included in Borsa Italiana’s Ftse Mib index or in equivalent foreign indices;
- At least 5% (or 3.5% of the total) shall be invested in small-cap, or rather small-cap companies not included in the Ftse Mib or Ftse Mid Cap indices;
- The share invested on a single issuer shall not exceed 10% of the total (this also applies to liquid instruments such as current accounts and deposits, that together cannot exceed 30% of the invested capital).
The real advantage of this instrument, for private investors, is the related tax advantages: the capital gains generated by such investments are exempt from taxation, provided that the financial instruments are held for at least 5 years.
This tax exemption scheme is applicable up to €30,000 per year, for a total of €150,000 in a five-years period. If disposed of before five years, the capital gains are subject to the ordinary tax of 26%.
Furthermore, PIRs are also exempt from the inheritance tax, and there is the possibility to transform part of any capital losses realised into a tax credit of up to 20% of the qualifying part held in the PIR.
From 2020, following the Decreto Rilancio, new instruments with similar characteristics, called Alternative PIRs, were introduced:
- At least 70% of the investment portfolio shall be invested for at least two thirds of the year in direct or indirect financial instruments, including non-listed Italian companies not belonging to the Ftse Mib and Ftse Mid Cap indices;
- The tax benefit has been expanded with the possibility to invest up to a maximum of 300 k€ per year, for a total investment of 1.5 mln€ in five years exempt from capital gain tax;
- Alternative PIRs can be constructed through investment vehicles such as Eltif, PE funds and private debt funds.
But how did these instruments perform and how much capital did they raise?
The PIRs, according to Assogestioni observatory, have about seventy funds on the Italian market, which manage about 19.5 billion euros, divided into 18 billion euros in ordinary PIRs (1.7% of all the managed assets, in #65 funds) and 1.4 billion euros in Alternative PIRs (0.1% of all managed assets, in #13 funds). These products invest more than 50% in Italian shares, almost exclusively of medium and large capitalisation, and 29% in Italian corporate bonds. Finally, 3.7 billion euros are channelled to medium-sized businesses and 1.0 billion euros to small-sized companies.
Individual savings plans aim to educate savers to invest in the medium-long term and in the real economy. Although the performance of the funds from the beginning of the year are negative (equity funds on average -19% on 25 July, balanced -11.5%, bonds -10%), as well as those of many asset classes, vintage performances from 2017 remain positive and this may have pushed some subscribers to take great advantages from their investments.
The point is to understand if those who have invested in such instrument have the convenience to liquidate at this time and then consolidate the gain; on the other hand, those who are currently facing negative performances, have no great alternative but to keep the investment until it becomes profitable, given has the investment horizon is a pivotal component of the PIR investment scheme to obtain the tax advantages.
Net collection PIRs – value in billion € (Source: Assogestioni)
By looking at the performance since the beginning of the year, as for the other asset classes, the data are not the best due to the general trend of the markets, but in the medium term, from 2017 to October 2022, the performance of the funds is divided in two: out of 53 starting funds, about 30 recorded positive performances and in some cases largely positive, with the best fund that achieved a performance of 47%; the other half, however, reported negative performance.
The PIR funds have not performed very well compared to the rest of the market, as the ancestral problem of the Italian stock market poor performance also permeates the framework of the PIR incentive.
Additionally, the possible tax benefit to invest in a PIR is likely to be compromised if the resulting gain is lower than other more developed and efficient instruments.
On the collection activity, in 2017 there was a great enthusiasm, related to the significant tax advantages and the purpose of supporting the real economy. The first year recorded 11.0 billion euros of collection, while in 2018 around 4.0 billion euros.
In 2019, with the regulatory introduction of some investment constraints, the product suffered from a substantial asset freeze, which led to a slight decline in the dynamics of net collection in 2019 (- 1.0 billion euros). The figure for 2020 also closes with a negative net collection of about 750 million euros.
In 2021 the recovery was decidedly marginal, in particular the ordinary PIR class (+300 million euros net). In the last half-year, the same has suffered a substantial setback due to the geopolitical and macroeconomic scenario, which will continue to weigh on net collection for the coming months, before a recovery expected in the latter part of the year or early in 2023.
Beyond past returns, which cannot be considered a reliable indication of the future for this new instrument, it is worth questioning whether current economic conditions are in favour of an investment focused heavenly concentrated on large and medium-sized Italian companies. Could the fears of economic recession and the conflict have a greater impact on the companies that make up the privileged investment base of the PIRs and, therefore, on the performance and net results of these products?
Source: Assogestioni, IlSole24Ore, We-Wealth
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