Italy's Fondo Italiano realigns focus

Having inked more than 30 deals since its inception in 2010, Italy's most active GP is widening its remit. Thanks to a further €350m commitment from local bank Cassa Depositi e Prestiti (CDP) – which is 80% owned by the Italian Ministry of Economy and Finance – Fondo Italiano di Investimento is to focus on fund-of-funds activity in the debt and venture capital sectors.

The alternative lending space is notably absent in a country that continues to feel the aftershock of the banking crisis. As a result, Fondo Italiano's commitment to mini-bonds – which received a legislative boost recently due to changes in the Development Decree – will come as welcome news to cash-strapped SMEs and should align Italy with developments in the bond market across Europe. CDP, which holds 12.5% of Fondo Italiano, has committed €250m towards the private debt vehicle's €500m target. As the bond market opens across Europe, CDP estimates that this form of lending could help around 33,000 Italian SMEs with turnovers of €5-250m in a barren landscape of traditional lenders.

The bank has also earmarked a further €100m commitment to Fondo Italiano's venture fund-of-funds, which will focus on seed capital, early-stage and expansion capital investments primarily in the technology sector. The strategy is not entirely new: last year, the GP committed capital to United Ventures, a newly formed venture investor formed by the merger of Italian VCs JV Capital and Annapurna Ventures. Italy's venture space certainly needs a boost; across a five year sample period, the country was home to just 2.7% of all early-stage deals across Europe – less than half that seen in Spain and a 10th of the activity in the UK, according to unquote" data.

State-back fund to expand into mini-bonds

Presided over by Innocenzo Cipolletta, president of industry association Aifi, Fondo Italiano has been the most active investor in Italy each year since its first investment in 2010. Indeed, volume and value of deal activity peaked in Italy in 2011 – the first full year the fund was in operation. unquote" data reveals that the deals with Fondo Italiano as the sole private equity sponsor represented 18% of deal volume in 2011, 19% in 2012 and 8% of 2013 statistics.

Propping up the stats
In 2012, the year of Fondo Italiano's largest market share, its absence would have seen the number of deals in Italy fall from equal to Sweden – a traditional stronghold in the European market –  to slip in line with the much smaller Netherlands market. And with around €180m still to invest before the end of 2015 and a second fund expected in 2016, its direct investment presence is set to continue.

But on a national level its hyperactivity has come under fire due to the market segment in which it operates. According to unquote" data, 75% of dealflow occurred in the small-cap space in Italy in 2010 – when Fondo Italiano completed its first investment on the closing days of the year. The following year, the market segment took 79% of dealflow, rising to 81% in 2012 before a drop to 72% in 2013. The small-cap space was arguably already well-served.

Consequently, the latest shift in strategy will no doubt be welcome among local GPs, many of which have criticised the unfair competition the state-supported fund represents. Anecdotal evidence suggests mid-market professionals have welcomed the latest strategy, though those in fundraising mode may feel the loss of its aforementioned mid-cap fund-of-funds activity.

In the mid-cap space, the fund has committed €30m to Ambienta Fund II and €25m to Consilium Fund III. Adding to its local commitments, Fondo Italiano is also counted among the LP base of Ardian's latest expansion fund, Ardian Expansion Fund III. Its retirement from the mid-market fund-of-funds space will no doubt be felt. But fundraising aside, there is reason to celebrate the realigned strategy of Italy's key market-mover.

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