In a significant move to bolster the Italian economy, the Ministry of Economy and Finance (Mef) and Cassa Depositi e Prestiti (Cdp) are set to launch a strategic national fund in the first quarter of 2025. This initiative aims to mobilize at least 700 million euros to invest in small and medium-sized enterprises (SMEs) listed on the Italian stock exchange. The fund, a closed-end fund of funds, will be entirely subscribed by Mef and managed by Cdp, in collaboration with private investors. It will invest in newly established Italian funds managed by both Italian and international asset management companies. This strategic fund represents the first tangible application of the initiatives proposed in the Capital Market Development Manifesto, introduced a year ago. The manifesto called for the state, through its specialized financial entities, to promote a billion-euro fund of funds, selecting ten managers with 100 million euros each for investments in Italian listed SMEs. Although the initial amount is less than the ambitious target, a positive market response could amplify its impact. Francesco Mele, CEO of Cdp Equity, explained that the strategic national fund could acquire up to 49% of newly established closed-end funds of Italian law, which must invest at least 70% in small, micro, and medium-sized companies listed on the Italian stock exchange. The remaining 30% of the portfolio can be invested in other Italian-listed securities, including stocks and bonds. The key criterion is the listing in Italy, not the company's nationality. For instance, a company like Ferrari, listed in Italy but headquartered in the Netherlands, can be included, whereas Prada, listed in Hong Kong, cannot. Within these parameters, fund managers have complete discretion in portfolio allocation. Mele further elaborated that the plan is to invest in approximately ten funds, with an indicative investment of 35 million euros each, totaling 350 million euros. With private investments, the total mobilized resources will reach at least 700 million euros. The funds must have a minimum duration of five years, can distribute dividends, and must be liquidated by December 31, 2032, marking the end of the Mef-Cdp fund of funds. Mechanisms will be in place to prevent overbuying and overselling dynamics. Asset management companies can gather subscriptions from both institutional and retail investors. The strategic national fund can also act as an anchor investor in initial public offerings (IPOs). The initiative addresses the challenge of SME attractiveness in the market, a problem not unique to Italy but more pronounced there. SMEs are often disadvantaged by liquidity shortages, as trading tends to focus on blue-chip stocks, and the recent trend towards passive portfolio management, which merely replicates indices, exacerbates this issue. Revitalizing this segment is crucial for Italy, as it is not a matter of supply scarcity or company quality but rather a demand scarcity or distortion. As Gian Marco Salcioli, head of global markets strategy at Imi, noted, smaller companies, which account for 76% of the total workforce, contribute 63% to the total added value. Simone Strocchi, president of Electa and one of the first signatories of the Capital Market Development Manifesto, expressed hope that this project would initiate a virtuous cycle, attracting interest and capital to many Italian listed companies that languish at low prices relative to their capabilities and potential, risking foreign capital takeovers. Federico Freni, undersecretary of Mef, assured that the implementing regulation of the fund would be released soon, emphasizing that the initiative would provide SMEs with the support needed to enter and remain in the market.

Emerging Trends

The strategic national fund could set a precedent for similar initiatives across Europe, focusing on enhancing SME market participation. As the fund matures, it may lead to increased investor confidence in SMEs, potentially encouraging more IPOs and diversifying investment portfolios. The success of this initiative could inspire other countries to adopt similar models, fostering a more robust European SME market.

Insights

The initiative highlights the critical role of SMEs in the economy, particularly in Italy, where they form the backbone of the workforce and contribute significantly to the GDP. By addressing liquidity challenges and market attractiveness, the fund aims to unlock the potential of these companies, ensuring they receive the attention and investment they deserve.

Opportunities

1. Increased investment in undervalued SMEs could lead to significant returns for investors.

2. The initiative may encourage more SMEs to consider listing on the stock exchange, providing them with access to capital and growth opportunities.

3. By acting as an anchor investor, the fund could stabilize IPOs, making them more attractive to other investors.

4. The project could stimulate innovation and competitiveness among SMEs, driving economic growth and job creation.