Overview of recent activity
Supportive global economic conditions, expansionary monetary policy, structural reforms and prudent fiscal policy have bolstered Italy's economic recovery for the past years. Exports, private consumption and investments were the main drivers of the recovery, with the added support of rising international demand.
The Italian financial markets picked up in 2019, including because of the European Central Bank's (ECB's) commitment to maintaining highly expansionary monetary conditions for a longer time. But the Italian economy, as all others, has been hit by covid-19, with the economic outlook for the rest of this year and coming years being curbed, especially compared to projections from 2019.
To support the liquidity of small and medium-sized enterprises (SMEs) and households, and to facilitate firms' access to bank credit, the Italian government made it possible to take advantage of legally binding moratoriums on existing loans and made available public guarantees for new loans issued by banks and financial intermediaries.
As to financial operators and institutional investors, the consequences of the crisis have been modest. The sharp drop in financial asset prices and the rise in volatility have led to a reduction in the solvency ratio of insurance companies, but it remains well above the regulatory minimum. The numerous requests for redemption in the investment fund segment have been met in an orderly fashion, partially due to the limits on investment in illiquid assets provided for under Italian regulations.
From a regulatory standpoint, the European regulator's intervention in recent years in the asset management field (e.g., through the Alternative Investment Fund Manager Directive (AIFMD)) has played a major role in increasing investment opportunities for investment funds (e.g., by allowing alternative investment funds (AIFs) to acquire loans from non-customer originators against their own capital), while at the same time making the sector more trustworthy for less sophisticated investors.
The positive trends seen in the Italian asset management industry in 2018 continued in 2019; by the end of the year, total assets under management (AUM) reached a value of more than €2,307 billion, an approx. 14 per cent increase on the previous year. But also, this landscape has already changed as a result of the pandemic: by the end of April 2020, the AUM dropped by €129 billion, compared to December 2019.
Italy's venture capital sector remained stable in 2019, and venture capital-financed start-ups were seen to grow faster and be more innovative than comparable companies. A reduction was seen in long-term individual saving plans (PIRs), which were introduced in 2017 to boost investment in financial instruments (shares, bonds, etc.) issued by Italian SMEs (see Section IV). However, this trend is expected to reverse due to the new alternative PIRs, for which mostly more affluent private clients will be eligible and which aim to ease investment diversification and encourage SME growth (see Section IV).
With a view to facilitating the inflow of capital for SMEs and start-ups, in April 2019 a new form of investment vehicle was introduced, known as simple investment companies (SISs). SISs are a type of AIF incorporated as joint-stock companies, with fixed capital that benefit from several exemptions under the asset management regulatory framework.
For the same purposes, in June 2020 the Italian Ministry of Economy and Finance (MEF) published for consultation a proposal to amend Ministerial Decree No. 30/2015 to expand the cluster of retail investors eligible to subscribe and purchase reserved AIF units (see Section IV).
Lastly, technology-enabled innovation in financial services is fast developing in Italy and offers numerous advantages. Indeed, fintech has the potential to: (1) increase efficiency and reduce costs; (2) improve access to, and provision of, financial services; (3) enhance the customer experience; and (4) create markets for new and innovative financial services and products.
As technology continues to break down the barriers to entry in financial services markets, asset managers, banks and other regulated entities are reacting to this changing environment and offering more online services. This involves them shifting the distribution of their standard services to online platforms via multichannel networks, thereby reducing the number of physical branches, which allows the remaining branches to specialise in high value-added services (e.g., wealth management, private banking and advisory).
The recent trends in the Italian asset management sector can be summarised as follows:
- an increase in private equity and venture capital deals (3 per cent up on 2018);
- progressive growth in the green and social bonds market (i.e., financial instruments whose proceeds are allocated to finance projects with a positive environmental or social impact);
- slight increase in profitability of asset managers operating in the real estate sector, following an increase in trading volumes;
- increased number of AUM; and
- increase in AUM (up by 8.01 per cent in March 2020 compared to March 2019) of exchange-traded products (the vast majority of which are UCITS-compliant exchange-traded funds (ETFs)).
To support recovery, specific measures have been adopted in recent years, including:
- the possibility granted in 2013 to the SMEs Guarantee Fund to provide coverage also to SGRs, in addition to banks and other financial intermediaries;
- the opportunity given in 2014 for Italian AIFs and, in 2016, for EU AIFs, to carry out direct lending activities;
- the introduction of PIRs, launched to boost investment in financial instruments (shares, bonds, etc.) issued by Italian small and medium-sized enterprises (SMEs) thanks to the tax exemption they are granted;
- the levelling of the playing field between rules governing alternative funds and UCITS managers (as a result of the convergence of their respective sets of regulations) owing to the implementation of the AIFMD (see Section II);
- the review of the crowdfunding framework so as to expand the scope of eligible investors and reduce certain regulatory entry hurdles; and
- the increase in investment in ETFs.
Furthermore, the increasing reach of more complex and innovative technologies is rapidly transforming the structure of the financial industry. Indeed, fintech is radically innovating the way financial services and asset management are designed and offered. It represents an evolving phenomenon that involves several market segments (e.g., wealth management, investments services, crowdfunding, and peer-to-peer lending), and heterogeneous tools and techniques (e.g., robo-advice and artificial intelligence).
The management and analysis of big data, the use of artificial intelligence and machine learning, and the potential offered by distributed ledger technologies are changing the services provided; they are also opening up the sector to new competitors – including, but not only, the big techs – that are able to swiftly exploit the advantages of operating and trading in the digital economy.
As to financial results, asset managers closed the last financial year with increased profits (up 36 per cent), mainly owing to the recovery of the main financial markets. Investments in closed-ended real estate funds positively affected the profitability of real estate managers (profits almost doubled).