Everyone is crazy about the Pir, the individual savings plans introduced by the latest Budget Law that are arriving on the Italian financial market these days. If you invest in funds which in turn allocate the capital raised to companies (mainly Italian and largely in small and medium-sized enterprises) you do not pay taxes on profits as long as the investment lasts at least 5 years. You can invest up to 30 euros a year for a total of 150 euros over 5 years. If the game works, families and savers win "also from a pension perspective", small and medium-sized enterprises win, which finally receive the liquidity they need to grow, and financial intermediaries win, in front of whom a new market which, according to initial estimates, may exceed 18 billion. Above all, the growth of the Italian economy should finally gain from it. On the news of the Pir FIRSTonline interviewed Michele Calzolari, long-time president of Assosim, the association that brings together financial intermediaries.
FIRSTonline – President, the arrival on the Italian market of the Individual Savings Plans (PIR) introduced by the latest Budget Law, presents itself as the major financial novelty of the beginning of 2017: what exactly are the purposes of the PIRs and what is needed do not waste it?
“I think it is necessary to start by saying that we are very satisfied with what the Government has achieved. In fact, Assosim fully shares the aims of the PIRs: to channel savings towards the real economy and, in particular, towards SMEs which, as we know, are suffering the most from the current credit crunch. The low liquidity of the financial instruments issued by them is the main obstacle that SMEs have to face in order to raise capital on the market. The tax incentive, linked to the 5-year lock-up period, will contribute to making the financial instruments issued by them more attractive, consequently increasing their liquidity. To make the most of this opportunity, the provisions on PIRs could now be usefully accompanied by other incentives, also aimed at increasing the liquidity of these instruments, such as, for example, incentives on financial research and funds of funds also dedicated to SMEs. However, I note with pleasure that many of the main collective managers have already begun to offer the product or are gearing up to do so".
FIRSTonline – Who will benefit the most from PIRs? Savers, especially small and medium enterprises, or savings managers?
“If it is true that the tax advantage introduced by the Government is primarily aimed at households, I believe that SMEs will benefit the most, as they will bear lower funding costs. In this way, their ability to compete on the market is increased, with a consequent increase in their turnover and the level of employment they guarantee, thus benefiting the growth of the country as a whole. Having said that, it is in any case a great opportunity for managers as well. If, in fact, at least in the initial period, savings currently used in their other products could be channeled into the Pir, it is also true that the overall assets managed by them are naturally destined to increase in the medium term thanks to the economic growth that the provision is aimed at trigger and the consequent increased capacity of households to generate savings".
FIRSTonline – An estimate is circulating in the financial community according to which the PIRs can generate funding of the order of 18 billion in 5 years: Does this seem a realistic estimate?
“Much will obviously depend on Italy's ability to match the growth levels that are already consolidating in other countries. Moreover, where the PIRs, as expected, will effectively contribute to relaunching the productivity of our businesses, it is possible that the collection generated by them may even prove to be higher than these estimates. The attractiveness of the instrument is in fact directly correlated to the level of profits that will be subtracted from taxation. The higher the tax-exempt dividends and capital gains, the greater the incentive for households to allocate savings to this form of investment”.
FIRSTonline – Will individual savers or institutional investors be more attracted to PIR among investors?
“Undoubtedly important are also the tax incentives introduced in favor of compulsory social security institutions and the forms of supplementary social security which invest in Italian financial instruments and/or units of funds which invest in Italian financial instruments. But regardless of this, I believe that, given the large amount of financial resources managed by them, investments even substantially lower than the maximum limit of 5% allowed for them to take advantage of the subsidy would contribute to relaunching the Italian economy in a significant way, guaranteeing in thus the revival of employment in the country which is essential for the sustainability of our social security system. It would therefore be short-sighted for these individuals not to take advantage of such an opportunity."
FIRSTonline – For a saver who invests thinking about the future, is it more convenient to invest in PIR or in pension funds?
“I believe that the PIRs should also be considered by savers from a pension perspective. The lock-up period linked to the tax advantage makes the instrument naturally functional for medium-long term investments. Furthermore, to the extent that the PIRs should actually contribute to relaunching the growth of the companies in which they are intended to invest, the capital gain for the saver would also be relevant, subtracted, as has been repeatedly mentioned, from the relative taxation, as well as from the inheritance tax".
FIRSTonline – Can the identikit of the Pir saver already be traced? Beyond the binding time horizon of five years and the consequent uncertainties of the markets in times of high instability and volatility, what are the risks that a saver must be aware of before investing in PIRs?
“It is necessary to premise that the PIRs will be able to take both the form of administered deposits and that of asset management for which only, as we know, the precautions connected to the profiling obligations are relevant. However, it is good that even the investor who operates through an administered account carefully considers the characteristics of the instrument and which constitute the logical prerequisite for precisely tracing the identikit of our saver. As known, the instrument is characterized by a high component – which we know is 21% of the total invested sums (i.e. 30% of the 70% of the component represented by Italian securities) – invested in securities with limited liquidity and, hence, highly volatile. It is precisely in consideration of this peculiarity, however, that the legislator has made the tax benefit subject to a 5-year lock-up period. It is therefore understandable that the main characteristic to which our investor will have to respond is represented by a holding period not shorter than this term.
On the basis of an analysis of the previous performance of the securities which may be included in the investment plans, we can say that they must be savers who expect substantial returns from their investments. Consider, purely by way of example, that in the last 5 years (period of time corresponding to that of the lock-up set by the Government) the MID CAP sector (represented by the FTSE ITALIA MID CAP index) has grown, as a whole , by 81% (from 17.708 at the beginning of 2012 to 32.099 at the end of 2016), against an average growth of just over 27% in the securities included in the FTSE MIB index (in the same period, the FTSE ITALIA STAR index grew even almost 190%”.
FIRSTonline - Don't you think that the destination of PIRs to mainly Italian companies could represent a strong limit to the diversification of investments and also that the profitability of small companies is lower and more uncertain?
“And here we come, precisely, to the second characteristic of the instrument, which you correctly identified in the strongly national connotation of the investments underlying it. This characteristic necessarily corresponds to the assumption, by the saver, of a country risk which, should it not be suited to the profile of the latter traced by the intermediary, could only be acceptable from a viewpoint of the overall portfolio”.
FIRSTonline- Many savings management companies are about to launch funds for PIRs: will initially they be mainly homogeneous products and mainly balanced between equity and bonds?
“Although I personally believe that the lock-up period is functional above all to the need to encourage the inclusion of equity products in the investment plans, it is clear that each manager will modulate the internal composition of their funds according to the characteristics of the customers to whom it will place the product. Regardless of this, I believe that once fully operational it is also necessary to look at how the market and, in particular, SMEs will react on the supply side or, better, at the ability of issuing companies to develop growth strategies functional to the issuance of equity or - alternatively or jointly - to any interest they may have in converting bank loans into bonds".
FIRSTonline – Some say that the tax exemption on savers' profits can lead managers into temptation to increase the costs of the Pir: what are the first signs?
“There is currently no data to be able to carry out such an assessment. However, given the intense competition on the fund market, I believe it is unrealistic for managers to convert the tax incentive envisaged for the benefit of savers into higher commissions. I also believe that any comparative evaluation must necessarily take into adequate consideration the greater complexity and, therefore, the greater costs associated with a management service on illiquid securities (think, among all, of the scarcity of financial research on securities not included in the index primary). The professionalism that the managers will be called upon to put in place to select the best securities must necessarily be adequately remunerated. In fact, it must be considered that within the average returns of the MID CAP sector I mentioned, there are securities (in particular 5, all listed on the STAR segment) which have developed results exceeding 500% (with a peak of 837% ), and at least 4 (among those that have not been delisted in the meantime) who have made losses of more than 30%, with a peak of around 70%".
