Public plays

As the world’s seventh largest economy, according to the International Monetary Fund, it seems odd Italy doesn’t produce more businesses with a global presence. That may change with a little help from a state-backed private equity initiative. In order to boost the country’s competitiveness in international markets, Italy’s government last year launched the Fondo Italiano d’Investimento (or FII), a government-backed private equity fund. Largely financed by domestic banks, insurance firms and businesses, the fund seeks to inject growth capital into small- and medium-sized Italian companies.

The FII, which last November held a first close of €1.2 billion, will make both direct investments and commitments to managers via a fund of funds platform. Targeting promising regional businesses with a turnover of between €10 million and €100 million, the state aims to stimulate consolidation among its investee companies in order to build “national champions” able to compete abroad, according to the fund’s website.

As a public-private scheme, the FII also expects “a return generally lower than traditional private equity returns”, and will refrain from taking majority stakes in its investments. This is intended to make FII capital more attractive to Italy’s SME community, which may be more willing to receive a growth capital injection to their businesses if they do not have to relinquish control or strive to meet the return rates demanded by private sector investors.

It will be crucial that, despite seeking low returns, the fund is not perceived as directing capital into projects with less growth potential and away from more promising businesses

Dante Leone

Some argue, however, that care will be needed to ensure the initiative is entirely beneficial for Italy’s private equity industry. “It will be crucial that, despite seeking low returns, the fund is not perceived as directing capital into projects with less growth potential and away from more promising businesses,” argues Dante Leone, a private equity specialist at Milan-based law firm Capolino-Perlingieri & Leone.

“A fund of this size might also create competition for managers unwilling or unable to match the government’s looser demands,” says Leon, adding that “it would be a sad day for the industry if small business owners ended up being keen on an investment from the FII before settling an agreement with the private market, resulting in a loss of top deal flow.”
Dante balances his concerns with praise for the FII’s managers who “all have significant experience in the private sector”, adding, “they are certainly well aware of the ramifications of their future investment choices.”

However, debate over the fund’s precise impact on the market will remain speculative until a sufficient number of investments have been inked. The FII’s first deal was announced just last December: a €6 million investment in Arioli, a producer of high-end machines for textile finishing.