Efforts by Italy’s corporate elite to keep power in the hands of “friends and family” and failures by regulators to adequately enforce governance rules deter foreign investment and must be challenged, say senior executives at one of the top foreign investors in Italy.
Joseph Oughourlian, co-founder and chief executive of New York-based Amber Capital, an event-driven hedge fund, has $500m invested in about 20 Italian companies in construction, food, banking and insurance.
A standalone Italian equity fund run by Amber is up 15 per cent since its inception in November 2009, compared with a 29.5 per cent fall in the Italian FTSE MIB index.
Mr Oughourlian’s comments, in an interview with the Financial Times, come as business in Italy struggles to attract investment during a nearly two-year long recession and as last month’s inconclusive Italian elections raise fears about the timing of recovery.
“Italy has the rules to protect minorities, it has the toolbox to do everything right. It is the enforcement that is completely inadequate. This tool box then becomes a figleaf,” Mr Oughourlian says.
Mr Oughourlian, a former head of equity proprietary trading at Société Générale, and Umberto Mosetti, the head of Amber Capital in Italy, have taken activist positions in three high-profile governance cases in Italy in the past 18 months.
Amber’s acquisition of significant minority stakes at Impregilo, construction group, and Fondiaria-Sai, the insurer, helped to trigger a shake-up of the shareholder structure and takeovers at both groups.
At dairy group Parmalat, where Mr Mosetti sits on the board, Amber is challenging a move by French majority shareholders Lactalis to use a cash pile by Parmalat to buy out Lactalis’s US business.
Since Amber’s intervention, Italian prosecutors and regulators have launched a probe of Lactalis’s move. Parmalat, now more than 80 per cent owned by Lactalis, says it believes it has acted correctly and is co-operating fully with the Italian authorities.
Mr Oughourlian says that on balance he remains optimistic: “I think there’s money to be made in Italy. Lots of it. You can say the same of Spain and Portugal. I’m reasonably bullish on the whole of southern Europe as I believe ultimately the reforms will be done.”
He describes the low valuations of Italian companies as giving room for comfort and providing him with a buffer as an investor. Italy starts from such a low level from a governance perspective it can only improve, he says.
Mr Oughourlian puts the liberalisation of goods and services at the top of his list for reform in Italy. He also urges reform of the judicial system, a common demand made by foreign companies in a country where civil lawsuits can take years to be resolved.
In Italy, such reform is considered difficult to achieve because it has become politicised due to the stand off between the judiciary and Silvio Berlusconi, the former prime minister and a vocal critic of the Italian courts.
“There needs to be a reform of the justice system, unfortunately Silvio Berlusconi has poisoned the well,” Mr Oughourlian says.
Amber Capital’s focus on Italy – it accounts for a third of the value of its total investments internationally – comes at a time when business leaders in Italy admit they struggle to sell their country to foreign investors. Milan’s stock exchange has hosted only two listings in two years.
Mr Oughourlian says his own investors, who include leading investment funds, were also perplexed. They ask: “Why would you want to get involved in a country like Italy?”
Amber has not been universally welcomed in Italy. It has been under investigation by the stock market regulator for allegedly acting in concert with another shareholder during the takeover battle at Impregilo.
Mr Oughourlian denies the allegations. Mr Mosetti, a well-known corporate governance expert before joining Amber Capital, argues they met with hostility in part because the concept of an independent minority investor remains unusual.
“Italian law is among the most advanced in the world. But the process of picking minority shareholders’ representatives for the boards in many cases has been hijacked by friends and families”, Mr Mosetti says.
Nevertheless, Mr Oughourlian says he is in the money. He bought Parmalat shares at €1.5 and they now trade at €1.9. He bought Impregilo at €2 per share and today they trade at €4. He bought shares in Save, the management company behind Venice airport, at €6.4 and they trade at €9.9.
And he sees more money to be made. Amber’s latest venture is to raise €300m for a new long-only fund dedicated to southern Europe, a category in which Mr Oughourlian includes France.
“French valuations are closer to the other countries in southern Europe,” he says. “We expect France to be the next shoe to drop”.