Lack of passport could force Italian GPs to emigrate

While the date for complying with the AIFM Directive (AIFMD) caused nervous chatter among UK-based GPs, many of whom registered with the Financial Conduct Authority in the closing days of its one-year grace period, 22 July passed with eerie silence in Italy. But the missed deadline came as no surprise to local private equity practitioners.

On 9 March 2014, a year behind most European countries, the AIFMD legislative decree of 4 March for the implementation of the directive was adopted; it came into force on 9 April 2014, far behind other European countries. In the UK, for example, initial discussions regarding the directive began in March 2012, with the AIFMD transposition coming into force on 22 July 2013 – just 19 days after the Italian government opened its initial public consultation focused on the new rules.

The regulatory gap that divides Italian private equity from neighbouring European markets is already wide. The minimum capital commitment to establish a general partner in Italy stands at €1m, more than the €125,000 minimum threshold imposed by the AIFMD. And with more than 10 regulators with which Italian GPs must comply, the financial and time cost is high. Could the late arrival of the AIFMD be the regulatory nail in the coffin?

According to industry association Aifi, around 20 local GPs have moved their business outside Italy in pursuit of a more level playing field. And this tide is far from being stemmed. As a handful of Italian GPs internationalise, opening offices in other markets and staffing up abroad, what is to stop them from shifting the legal headquarters of the fund manager? Indeed, discussions with local practitioners with an international outlook have revealed that moving to another, more hospitable regulatory environment abroad remains an option should the regulatory gap that lies between Italy and the rest of Europe remain, or, at worse, widen.

Unfair competition
Italian fundraising is already challenging enough; according to unquote" data, local GPs have raised just €4.3bn in the last five years – less than half the €9bn raised by UK-based Apax Partners for its latest fund alone. As has traditionally been the case in Italy, the majority of fund managers have relied on local LPs as a source of capital. Aifi data reveals that in H1 2013, a total of 93% of LPs active in Italy were based in the country – a proportion that had grown consistently since 2009, when the figure stood at 68%. Pre-crisis, this was not such a problem given that national banks, foundations and insurance companies were less deterred by headline-grabbing macroeconomic woes than nervous international investors. But as traditional investors have fallen by the wayside, international LPs are more important than ever.

Despite the uneven playing field, there have been some notable successes in the mid-market this year. Having held a first close for its latest vehicle on €95m in February, Consilium is currently on the home straight and focusing its efforts on international LPs. Mid-market environmental investor Ambienta aims to close its latest fund later this year; at second close, 40% of commitments had been provided by international LPs with the 50:50 target expected to be achieved by year-end. But for those GPs gearing up for fundraising, the high hopes pinned on the passport as a means of facilitating international fundraising have been left in tatters and competition with international GPs may be fiercer than ever.

Indeed, in the buyout space competition is already rising. According to unquote" data, just 31% of buyouts recorded in 2014 were completed by Italian GPs, with the lion's share of dealflow taken by international players that have swooped into southern Europe. A notable new addition to the local scene was US-based Lincolnshire, which took home 51% of industrial group Gruppo Fabbri Vignola from IGI in its first Italian deal. Meanwhile, UK-based Charterhouse cemented its focus on Italy, taking an 80% stake in cheese producer Nuova Castelli, having inked its maiden Italian deal in 2013. For Italian GPs in fundraising and investment mode alike, competition with international players is reaching boiling point, even on home turf.

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• Topics
• Southern Europe
• Regulation
• AIFM Directive
• Italy
• AIFI
• Apax Partners
• Consilium
• Ambienta
• Charterhouse Capital Partners
• United Kingdom
• Top story