The latest clarifications about the new Italian long-term savings plans (PIR) were provided by the Italian Income Revenue Authority in mid-July. But the new PIR – which were formalized in May by means of an official publication – are in fact still dead letter.
In the meantime, from January to June and through all Q3 2019, outflows for 350 million euros were recorded (data by Assogestioni), for an overall estimated assets loss of around 550 million euros – after the first two years in which PIR assets had risen above 15 billion euros. A trend that might continue, if no action is taken quickly, nullifying what on paper appeared as an excellent reform in favour of innovation. But what can be done? According to Sestino Giacomoni, Vice President of the Finance Commission in Montecitorio “canceling or at least suspending” the new rules that “are in fact damaging companies and savers“: for this purpose the member of parliament, representative of the right-wing Forza Italia party, has recently presented a bill.
However, we believe that the new legislation, if it will actually include venture capital investments, is a step in the right direction. Indeed, PIR were born to support the real economy, and the real economy also takes shape thanks to investments in young and innovative companies – such as those of venture capital portfolios. If we want to boost this market, we need to work together. The VC ecosystem is ready to support PIR managers in the launch phase of these new products. According to Fausto Boni, president of the Italian VC Hub, the new savings plans signify that “in Italy, where for a long time no one had ever cared about venture capital, things are changing. Helping companies helps GDP grow, creates jobs and makes Italy more reliable in the eyes of investors. PIR can contribute to this virtuous circle“.
So far we have listed some opinions. Let’s see the facts. The facts tell us that the main innovation of the new savings plans is their structure: if nothing changes, 3,5% of their total assets shall be invested in units or shares of Venture Capital Funds, and 3,5% of their total assets shall be invested in financial instruments issued by SMEs listed in MTFs (i.e. AIM). Going into detail, 70% of all PIR assets (i.e. the portion that has been destined to foster Italian companies and companies with a stable organization in Italy, of which at least 30% are not listed on Ftse / Mib financial market) shall be invested as follows:
Some people say that the new rules risk to jeopardize the creation of a performing portfolio and, if the returns turn out to be null or negative, the main risk is that the advantages of the tax exemption for investors are nullified too. The complexities are indeed of various kinds: for instance, eligible SMEs are, according to the definition of the EU Commission, companies that employ less than 250 people, and either their annual turnover should not be higher than 50 million euros, or their total annual budget should not be higher than 43 million euros.
In addition, the Italian law specifies that, in order to enter the portfolio of the new PIR, SMEs must either never have operated in any financial market or have been active for less than 7 years. Each SME shall receive financial resources for a maximum of 15 million euros, as required by the state aid legislation.
Some people consider such restrictions to be too limiting. According to them, they risk to push the PIR bubble towards a burst – while in their first two years of activity PIR have raised around 15 billion euros. While, since the beginning of 2019, they are experiencing a setback in terms of inflows, due precisely to the uncertainty surrounding the new rules – even if returns have had a surge, touching in many cases double digit figures.
Indeed, according to the calculations of the consulting company IrTop, today PIR hold 25% of the floating capital of the companies in the Italian Alternative Investment Market, but the new requirements will limit alternative investments to only 50 of the approximately 120 companies of this market. As for the Venture Capital market, the situation is equally complex. Some business houses are not compliant with the legislation because they cannot invest in unlisted instruments and therefore have stopped issuing new PIR.
However, we are convinced that by creating the proper synergies, the market can start growing again, helping VC and the Italian economy accelerate and get out of the quagmire in which we still are. Indeed, if we assume that the PIR assets can return to the levels of 10 billion euros per year – as it was in 2017 – then the 3.5% that has been destined to Venture Capital would be 350 million euros, which would feed an ecosystem that needs to grow – more so after the acceleration of 2018. And, ultimately, this will finally affect the growth of businesses and therefore of Italian GDP.