Italian private equity's threats and opportunities

"I have known the Progressio senior partners (Guido de Vivo and Filippo Gaggini) for years," explains Luciano Balbo, former general manager at Finnova – lauded as Italy's first venture capital investor – where he worked with de Vivo.

"They asked me to take this role, thinking about the future. Because in three to four years, members of senior management will retire completely," he says. "I will spend half a day a week reviewing deals with them, but without an operative approach."

Balbo's appointment was made in anticipation of Progressio raising a third fund. "The second fund is 40% invested and will probably close a deal soon, taking the fund to about 50% invested. I think the fundraising will be next year, but we need at least one exit in the next eight months before going to the market," he adds.

But fundraising for an Italy-focused fund will not be easy. Despite the recently sworn-in coalition, international perception of political instability remains. When asked what the biggest challenge an Italian GP faces when trying to raise international capital, the response is simple: "Italy!" quips Balbo.

"Moreover, some of the Italian investors that backed Progressio's previous funds may not be in a position to re-commit as they are banking foundations with their own troubles," he explains. "So the idea is to have more foreign investors, but that is difficult. It will be possible, but tough; I'm optimistic, but it will take time."

The road less traveled
Despite the challenges, Balbo remains convinced of the opportunities Italy presents to the discerning investor. "We need to move forward from the traditional pure buyout model. There are a lot of firms in Italy that are financially stressed, but are in good shape in terms of profit and loss," he suggests.

"There is a huge credit crunch here, and I don't see a quick solution to bank problems so that crunch will last. We therefore need to look at other models of investing. I am not saying pure distress, but companies with some financial problems yet a reasonably good market position are a great opportunity in Italy."

Such an investment model is startlingly absent in a country experiencing such an acute credit crunch. Luxembourg-based Orlando Italy Management is purely focused on special situations. The GP raised a €180m turnaround fund in 2007 after just a year on the road, asking for €5m minimum commitments from each LP. The firm is thought to have begun raising a follow-up fund last year, though reports have been muted since.

But with the Bank of Italy expected to get tougher with Italian banks and force them to write down some of their debts, it seems that this market could get the push it needs to present a bona fide opportunity.

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• Topics
• Southern Europe
• Fundraising
• Progressio SGR
• Italy