How Pegaso Pension Fund is Managing the Effects of the Pandemic
Fondo Pensione Complementare Pegaso is the contractual pension fund for the Italian utilities sector. Its membership base consists of mainly electricity, gas, and water companies, at present it has around 500 member companies.
Pegaso is the supplementary pension fund for the employees of public utility companies in Italy. For over a decade it has been preparing itself to manage a test such as the one we are currently facing, having cherished the lessons learned during and after the 2008 financial crisis. The fund offers three investment lines and foresees a life-cycle strategy allowing its members to gradually crossover from the most risky option over to the more guaranteed investment line as they near retirement. In the phase we are all currently facing, we measured that those who are nearing retirement, and who picked the life cycle strategy, were better shielded from the market volatility compared to those who kept their portfolio position highly exposed to market risks.
Concerning the Balanced Investment Line (which is the intermediary option that sees a concentration of 4/5 of the patrimony), a diversifying policy was actuated through time. During these months, we launched a mandate in a private equity AIF), specialized mandates (global equity and global bonds aggregate) and multi-asset mandates, characterized by a return objective and by a risk budget defined by VaR terms. This typology of mandate has allowed managers to reduce their equity exposure and other risky asset classes, swiftly, and efficiently. This is not something easily done with a traditional benchmark management, and it has allowed us to contain losses in the first trimester of 2020.
With regards to our specialized mandates, towards the end of March and the beginning of April, we rebalanced the portfolio, divesting from our bonds component, and investing in equities on the basis of the rules and best practice the pension fund has equipped itself for several years. Lastly, the decision to progressively integrate sustainability in our management criteria has constituted an additional factor that has protected our institutional portfolio during these tough times.
Bearing in mind there continue to be aspects that require further attention, in order to ensure the fund performance results effective during these particularly stressed phases. We are satisfied that on the window of time 2010 to 2019, the balanced compartment of Pegaso has reported the highest performance in relation to risk amongst the other similar compartments of the Italian pension funds.
The next steps will involve completing our investments in private assets, introducing new asset classes such as private debt and infrastructure and we will be revising current private market investments to make sure their performance is the best we can ensure during these stressful market conditions.
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