The eurozone debt crisis has put a risk premium on investments in Italy but investors who have switched to other markets for reasons of safety may be missing a trick.
Few are the funds that have successfully closed fundraising in 2011. One of them is Progressio Investimenti II, managed by Filippo Gaggini, managing partner of Progressio Sgr. The fundraising exceeded its target, closing with €205m, of which €20m came from the management.
Another is WISE Sgr, which closed fundraising for its Wisequity III fund at about €180m, more than the €170m target.
The funds are encountering significant problems with portfolio companies, which are struggling with a fall in retail consumption of between 10% to 20%, says Gaggini. This has left many firms too busy managing their portfolio companies and unable to demonstrate an improved performance.
The knock-on effect is that GPs are unable to interest potential LPs in what appear to be overly risky investments. Nor have recent regulatory changes helped, making it more expensive for certain investors to hold private equity assets.
But the fundamentals would suggest such a view is driven by short-term considerations of risk that ignore more long-term potential of the sector.
Massimiliano Saccone, founder of XTAL Strategies, an investment and advisory firm specialising in illiquid alternative investment strategies, points out the positives.
“Italy is a rich country. Figures from the Bank of Italy suggest it has 5.7% of global wealth, with only 1% of the global population. We are a nation of savers and owners of real estate.”
Salamone also notes that the Italian government is sitting on more than €100bn of stakes in companies it can sell. Last year saw a number of exits, including Stirling Square Capital Partners’ sale of aerospace components business Microtecnica for €330m, Riverside Europe’s exit of pump manufacturer Robuschi, and Investindustrial’s disposal of construction giant Permasteelisa.
These are all companies from the SME sector, which forms the backbone of the Italian economy, and is the focus for most of the private equity activity in Italy. Salamone expects to see a number of exits this year if the current pipeline of deals feeds through.
The Italian private equity industry is pinning its hopes on its class of wealthy entrepreneurs. Saccone says they are the most likely source of deals in 2012. Particularly strong is the fashion sector, which this year saw the flotations of fashion houses Ferragamo (€1.2bn), Moncler (€1bn) and Prada, which finally floated on the Hong Kong Stock Exchange last summer for $2.1bn.
To boost the prospect of such deals, the government last year launched a €1.2bn private equity fund, the Fondo d’Investimento Italiano. Half of the assets, drawn from local banks and pension funds, have been assigned to a fund of funds and the other half in direct investments.