Q&A - GPs

How would you characterise LP sentiment towards private equity the Southern Europe?

Marco Vismara on Italy

Large funds might encounter difficulty because they will be heavily invested at high multiples, with fewer exits from previous funds, and it will be difficult to find the right targets because 'recycling' (secondary buyouts) among funds will be rarer than in the past. Conversely, smaller funds should not find it so difficult to fundraise. Cape Natixis is currently raising a fund dedicated to the Sicilian region with a target of EUR50m; hard cap of EUR70m and it currently has subscriptions for EUR34m.

Ultimately, LPs will continue investing because the money is there: they will just be more cautious. The determining factor will not just be the IRR track record, but also the funds' sustainable positioning and what strategies will be used to generate value in portfolio companies; for example being able to open the door to European companies into emerging markets such as China and India. Cape already has a team of three in China working to facilitate the entry of Italian firms, with 10 of our portfolio companies already operating in there. We are replicating this structure and process in India.

Jorge Delclaux on Spain

LPs will continue to look for quality, in terms of track records and capacity to generate a considerable deal flow. 'Winning" teams will not only be able to offer this, but also create trust and have good chemistry with investors. The recent closing of N+1's third vehicle at EUR500m is an example of how trust and chemistry can work in favour of fundraising.

What regions and sectors currently interest you the most?

Marco Vismara

For me, geography is part of the 'sustainable positioning' that I mentioned. Investors are attracted by our focus on Italian SMEs to be 'internationalised' in emerging markets. This is in spite of the risks involved in entering such emerging markets, in particular with regard to intellectual property rights. But laws are changing to improve the protection of products.

In terms of sectors, what's hot right now are funds investing in renewables in part due to the high price of oil as well as for obvious environmental concerns. In this sense the South of Italy is well placed for investment in photovoltaic projects such as our recent investment in Helio.

What would you say was the most significant event in the past 12 months?

Marco Vismara

In Italy, the split of the Magenta team was definitely a low in the private equity scene; it does not look good when experts fail to work things through.

However, on the plus side, many successful deals, at all levels, have been closed in the past 18 months and they are a sign of good opportunities still present in the system.

Jorge Delclaux

I would say that the single occurrence which has had a great impact on investor sentiment has been the slowdown in the Spanish real estate sector and the individual crisis of certain major real estate companies such as Astroc or Colonial. These individual crises have received significant international coverage which has amplified the dimension of the underlying problem. Not everyone in Spain is as heavily leveraged as some of these companies have been.

What does the future hold for fundraising?

Marco Vismara

Uncertainty is widespread. The Government is not helping: for example, Italian institutional investors such as banks and insurance companies are penalised by the law on capital gains tax treatment, the so called 'participation exemption'. Direct investments not involving private equity obtain tax cuts, while those investing in Italian private equity funds still see their capital gains being fully taxed at corporate rates.

Undeniably this has implications for domestic players hence Cape has been diversifying its investor base to include international, mainly European, investors alongside existing ones.

Jorge Delclaux

The Spanish market is growing and progressively maturing, and fundraising has proven balanced over the years. Established GPs will encounter less difficulty than newcomers. Equally the nature of this asset class along with current market fluctuations is rendering private equity (and hedge funds) as an attractive alternative for investors such as family offices, at least in Spain.

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• Southern Europe