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The head of Italy’s €4bn state-backed investment fund has rejected accusations that backing from Rome is “distorting” the Italian private equity market for investors keen to tap resurgent interest in the eurozone’s third-largest economy.
The comments from Maurizio Tamagnini, chief executive of Fondo Strategico Italiano, come as the former banker prepares to finalise a €500m deal with the Kuwait Investment Authority.
The KIA deal to invest in the Italian investment fund follows an agreement by the Qatar Investment Authority to invest up to €1bn in a dedicated FSI-run fund to acquire furniture, fashion and machinery that is “Made in Italy”.
“There is no market to be distorted,” Mr Tamagnini tells the Financial Times in an interview at the fund’s 16th century headquarters opposite the church containing Leonardo da Vinci’s painting of the “Last Supper”.
Italy accounted for 5 per cent of the $95bn European private equity market in 2013, even though the Italian economy made up about 18 per cent of Europe’s total, he argues.
“Equity capital for Italian companies is unfortunately limited. Our mission is simple: this is the small market that we are trying to incentivise, open up and increase,” Mr Tamagnini responds.
FSI, which is owned by Italy’s Treasury-controlled state financing agency and the Bank of Italy, has emerged as a private equity force to contend with since its founding two years ago in the teeth of Italy’s sovereign debt crisis.
It has accounted for one-third of the value of deals in Italy’s dull private equity market since then, including the €650m buyout of AnsaldoEnergia, irritating private equity rivals in Italy who say its deep pockets and government backing give it an unfair advantage and deter foreign investors.
Mr Tamagnini, former head of Merrill Lynch in Italy, says FSI is busy building a portfolio of “10 to 20 Italian companies” as it aims to help prop up the country’s lacklustre market for foreign direct investments.
Deals such as that with KIA “consolidate FSI’s mission as a point of attraction for foreign capital in Italy”, he adds.
The fund is looking for strong market returns, which for infrastructure means a return of 10-12 per cent, he says.
In total FSI has invested €2.6bn in seven companies from biotechnology to valves. It has an investment target of €7bn and is pursuing talks with other funds, according to Mr Tamagnini, although he declines to give names. Bankers say it has held talks with Chinese investors.
The aim of the fund is to tackle Italy’s perennial industrial problem: its lack of large corporate groups and the fear of many family firms to put their businesses into the hands of outside investors. Italy has only 1,400 companies with annual revenues of more than €200m compared with 3,000 in France and nearly 5,000 in Germany.
FSI’s aim is to function as a “conduit” to foreign money into the backbone of its economy.
“The small size of firms, particularly since 2007, has meant lower profitability and cash flow and therefore less investment in R&D. This is putting smaller companies at a competitive disadvantage in the longer term,” Mr Tamagnini says.
FSI’s way of getting around usual fears among family firms of private equity is to get the companies ready to list on the stock exchange, therefore allowing families to remain in charge, another way in which it differs from a usual private equity fund. “This is important for an economy 95 per cent owned by families,” Mr Tamagnini says.
Unusually for private equity, it is also a joint stock company to avoid the pressure on a traditional investment fund to return its dividends within a limited timeframe, another factor that has irritated private equity rivals. Corporate heavyweights from major Italian exporters Luxottica and Campari sit on its investment committee and efforts have been made to make its governance transparent, frequently a weak point in Italy.
Its investment criteria is also broad: any company with annual revenues of more than €240m and more than 200 employees.
Nonetheless, it has not been uniformly successful. Bids for high profile fashion companies Valentino in 2012 and Versace this year both failed despite, in the case of Versace, its making the highest offer, according to people involved in the bid process. Mr Tamagnini argues FSI pulled out of the Versace bid because there were already many bidders involved.
Among industry analysts its exit has raised questions about whether FSI’s political connections also limit its appeal for Italian entrepreneurs who want to stay clear of Italy’s messy politics.
“FSI is not a strange animal,” Mr Tamagnini retorts, comparing FSI with state investment funds in Korea, Japan and Belgium. “All countries which have big public debt.”