Secondary players dominate Italy's foreign LP base

Susannah Birkwood
26 July 2011

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Italian GPs ought to be doing more to attract foreign investors at the fundraising stage, as many of the country's overseas-based LPs are secondary players. Susannah Birkwood finds out whether this and other local trends are about to change.

Many foreign LPs with stakes in Italian funds have entered the market via secondary transactions. This begs the question as to why more effort wasn't made to attract such ready money in the first place.

According to Giuseppe Salamone, associate investment director at Greenpark Capital, foreign players have been a particularly good source of Italian deal flow in the secondaries space. "In some Italian vehicles, the only foreign investors are secondary funds," he reveals. "This is probably due to the fact that the GPs did not have access to foreign investors when fundraising and therefore only manage to expand their investor base to foreign markets through secondary transactions at a later stage."

Another obstacle to foreigners entering funds before the final closing is their relative size when compared to local vehicles. While virtually all the pan-European LPs have some presence in Italy, it's often easier for the larger funds to enter the market via the secondary route, presumably because they can buy up the stakes of various exiting investors, thus securing themselves a much larger share than they would have been able to buy from the GP itself. "Sometimes it's harder for the bigger funds to find the right kind of opportunities in Italy," says Salamone. "The average ticket size is smaller than they're used to because the size of the funds themselves is also smaller."

One might think that LPs' concern over Italy's macroeconomic problems would be an extra driver of secondaries demand. However, those who are exiting stakes in local funds do not appear to be motivated by the nation's soaring borrowing costs or public debt levels being at 120% of GDP. Salamone points out: "Having talked to foreign investors, especially those from the US, many simply feel that good GPs will be able to find good investments, no matter what the economic situation is. In fact we are seeing more and more foreign investors doing due diligence in Italy."

Furthermore, while Italian fundraisers should perhaps cast their nets further afield, the anticipated trend for the nation's banks will be to scale down their private equity arms. Italy is currently Europe's capital of captive funds, with a great deal of GPs associated with large banking groups, but the country's first private equity spin-offs could well be established in the next year or two. "Up to now we haven't seen any major spin-offs from banking groups on the lines of what we've seen in Europe and other markets, but we expect that we will do in the near future," predicts Salamone. The impetus for this could be the new capital requirements imposed by the impending Basel III regulations.

Some Italian banks have already begun spinning off their asset management units over the past year. One example is Banca Monte dei Paschi di Siena, which sold its asset management subsidiaries, Monte Paschi Asset Management and AAA, to private equity firm Clessidra Capital Partners last July.