Brexit opens opportunities for Italian private equity

During her opening keynote at the unquote" Italian Private Equity Forum in Milan, Aifi general manager Anna Gervasoni discussed the challenges Italy may face in the short- and mid-term period. "Italy needs to change its attitude and start understanding what is actually going to happen in the future. First, we need to understand the changes in the European passports regulation," she said.

Indeed, one of the key concerns emerging from the UK's political upheaval for Italian private equity is in regards to international investors, in particular UK-based investors, which may no longer be able to commit to Italian funds within the current system.

The growing worry is rooted in 2014 and 2015 fundraising activity, whereby following a dramatic drop off in commitments from international LPs between 2009-2013, over the last two years, non-domestic fund commitments to Italian private equity houses accounted for 68.4% of the total raised in 2014 and 48.1% in 2015.

Incoming capital
Not only has increased attention from international investors boosted the country's fundraising figures, the number of overseas GPs transacting in Italy has also been rising. According to Aifi figures, in 2015 international funds active in Italy (those that completed one deal or more) reached 34% of the total players, marking a 3% increase compared to the previous year. In particular, in 2015 Italy saw two private equity heavyweights Hellmann & Friedman and EQT executing respectively their first and second deal in the country.

Furthermore, in 2015 international GPs accounted for 66.2% of the total value of private equity deals in Italy but only 13.6% in terms of volume, which means "international investors are doing fewer but larger deals compared to the local players", explained Gervasoni. These figures show "we need to work together with the pan-European funds to keep the industry growing", she added.

If the UK stays on-shore as Norway, not much will change. If they go off-shore as Switzerland, everything will change" – Nino Tronchetti Provera, Ambienta

Gervasoni highlighted the importance of London for European fundraising as "the headquarters of several funds and hub for many other non-European investors". With the onset of the UK's exit from the European Union, Gervasoni described the current situation as a new opportunity for Milan to play a major role in the European financial structure.

In line with this sentiment, executive chair and founding partner at Private Equity Partners, Fabio Sattin, gained the support of his fellow panellists when he said: "We need to clear the uncertainty, and the sooner the better. For Milan it could be an opportunity to attract new investors."

Swiss or Norwegian model?
But Nino Tronchetti Provera, managing partner and founder at Ambienta, believes "Brexit has yet to show its real effects". He said the future of Europe depends on the position the UK takes: "If the UK stays on-shore as Norway, not much will change. If they go off-shore as Switzerland, everything will change. In any case, the continent has lost the only player with a liberal and pragmatic view."

Similarly, Ivano Sessa, managing director at Bain Capital, said: "People are not going to migrate to Milan because of the Italian regulatory burden. Nevertheless, I think this is a great opportunity for EU members to bring Europe to the next step."

While it seems clear Italy and Milan has an opportunity to become a larger player in a reshaped European Union, many voices throughout the day highlighted the country's need to show stability to international investors. As Gervasoni explained, Italy's fundraising activity could change in the short- and mid-term period if the country demonstrates its stability. "Herewith, the constitutional referendum Italy will hold in October is a very important step in this direction," Gervasoni said.

Italy needs to change its attitude and start understanding what is actually going to happen in the future" – Anna Gervasoni, Aifi

But, taking a step back, Italy is not alone in needing to prove its stability; this is an issue currently facing many developed economies. Spain is in the midst of a standstill following its second round of elections and, in the US, the presidential election is creating its fair share of uncertainty.

Meanwhile, France, Germany and the Netherlands will hold their general elections in 2017. Against this backdrop, the wider private equity industry "will experience a period of slowdown in confidence and activity in the short term", explained Raffaele Legnani, managing director for Italy at HIG European Capital Partners. "But it will not impact portfolio companies, because the European SME market looks stable," said Philippe Minard, founding partner at Emisys Capital.

Further reading

• LPs

Brexit could boost secondaries market, says Idinvest’s Bavière

• 30 Jun 2016

• UK / Ireland

Brexit: first reactions

• 24 Jun 2016

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