good morning everybody it is a real pleasure to be at a meeting with real people in flesh and bones in front of me i would like to thank fidelity for their invitation and for choosing the theme of this session at the festival di trinto that focuses on a central theme for our future private capitals for common and shared growth that's the thing we're going to address today so how we can bring private capitals the world of finances and savings to companies to real economy i mean we go on talking about the recovery fund the european funds the state funds 191 billion dollars will be given to italy from europe italy is going to add more uh money to this money for a total of more than 200 billion euro in terms of public money but this is not enough we must be aware of that for resilience and recovery the two hours of our plan we also need private capital we needed that prior to coving we need that postcode as well so we have to see how we can bring these huge private capitals towards productive economy and we shall try to do that analyzing all the different actors the other side of the recovery plan the private side private site consists of investors in a very special situation today because the stock and share markets are at historical highs bonds have negative yields or point something yields also the grease bonds are 0.00 something in terms of yield so it's very difficult to find an alternative so real economy can possibly be a possibility for large investors that's one of our main theme and then we will talk about companies in italy before covet companies used to be under-capitalized and they were significantly dependent on banks covetous worsen the situation a very interesting study made by the association of financial european markets carried out together with bryce waterhouse shows that we have one bill 1 000 billion a whole in italy in germany in france so a huge capital gap that need to be filled so we'll know that the recovery fund money is not going to be enough we really need the private sector to jump on board and these 1 000 billion euro gap had already been anticipated by the european commission talking about the aftermath of covet so companies i mean the world of finances has huge liquidity supported by central banks and then we have companies that starve for capital so we want to bring these two worlds closer and then of course the role of the state of the government which is the late motif of our festival and also plays a role also in the issues we're going to debate and then savings i mean in italy families save a lot of money more than 4 000 billion a huge part of this in current accounts we will try to see how part of this huge wealth can end up in the productive economy because this huge mass of wealth is not invested right now in the productive economy so that's the other side of the recovery plan our government has made the public side of it but there's also the private side and we all have to contribute to this and we're going to address this topic with christian staub managing director of fidelity international europe one of the largest asset management companies worldwide i hope he's connected with us even though i cannot see him so let's put our hands together for christian staub then we have mrs lucrezia rightly professor of economy at the london business school one of the most influent economists in europe let's welcome her and last but not least anna gervasoni general director of i feed the private capital fund association private equity venture capital private debt funds that are the link to bring private capital to companies three guests three key personalities to try and listen to this new ideas well let's start with mr stow because i will speak in english but i believe he's got simultaneous translations so investors as i was telling you before um are in a strange world that there's a lot of liquidity central banks keep pumping liquidity on the markets we have interest rates that are zero below zero so the bond market does no longer exist and this securities have reached their historical highs in many stock exchange markets so shares are at a very high level companies need capital based on your background uh we know that you with your company are present in many countries in the world so you have a lot of experience so my question is funds that bring money to small and medium enterprises could be an answer to meet the needs of investors wanting some well hello everybody and uh thank you maurya for the introduction it's a great pleasure uh to be with all of you today uh also glad to be on the panel together with anna and lucrezia and i'm sure we can shed some light on what truly is a challenging situation now you've already introduced us to the key topic the the corbett crisis which has indeed left significant marks on both the macroeconomic picture and the market environment as you just elaborated and the situation for investors individual investors large investors is quite challenging and it really reminds me of a quote that i read recently um by giuseppe tomasi di lampedusa you recall in his famous book elgato pardo he says and this change that i'm thinking of here really has several components that i want to touch on firstly when you put yourself into the shoes of an individual investor if he or she is trying to achieve the same yield similar yield similar return then he had in the past this investor needs to reassess both the regional focus of the investments as well as the asset classes in terms of public versus private equity we'll talk about that as well as real asset and in addition there's this whole notion of sustainable investments which has really come to the fore also not only but also as a result of this crisis investors are taking a much broader look at what they're investing in what a good business is really defined by how it interacts with the broader environment social but also the environmental aspects become a lot more important so let me just briefly elaborate on some of these aspects and i i want to you know draw out the point that moria just made beautifully i think when he talked about the interest rate environment which clearly was driven by a very significant push both by central banks and fiscal agents and has resulted in interest rate levels that are much below what we had in the past and are now as you said mario below zero in many instances in fact italy sold a three-year bond in october last year i recall with a coupon of zero now if you put yourself into the juice of an investor that's not what will get you to your pension and all the things that you're saving for now this has pushed clearly the european banking system into a very difficult position because clearly banks benefit from higher interest rates and steep yield curves now they don't it has led to a lot of consolidation already and might continue to do so but it has also led investors to really consider public versus private investments because private investments as we've learned over recent years still offer both yields and equity returns that are above public market levels the other aspect that i think investors will continue to consider quite actively is the regional allocations we have had amongst european investors a big focus on european investments oftentimes domestic but we see now that with asia and china in particular coming out of the covet crisis much faster than the rest of the world there is a real interest and the real flow of capital into asia and china in particular and just to give you a sense of how big that potentially is if you look at the mainland china fixed income the bond market with the size of roughly 15 trillion dollars at this point only three percent of that market is owned by foreign non-domestic investors and that compares if you look at other large markets where you have 10 or 15 percent of foreign ownership it still is a very very small percent and then on esg i already mentioned a renewed focus or a new focus by investors on sustainable criteria this is a sea change and covet because of its social impact has really lifted the lit on many of the issues that industries have around you know social purpose and social impact and as we as institutional investors now are considering deploying capital the remnant of analysis has become much much broader we're looking at the supply chains we're looking at the long-term environmental impact we're looking at what companies do in terms of community support and all of these factors flow into an investment decision now because this has become so mainstream what this really does is it has changed the cost of capital to companies that do not adhere to sustainability criteria and you have seen it also with the enormous volume of individual investor funds in europe that have been flowing into sustainable investment products uh we're probably gonna cross the one trillion euro mark during this year so this 1 trillion tour is solely invested in investment products that have an environmental social and government's perspective to them and the european regulation some of you might familiar with be familiar with the sfdr regulation categorize these funds under article 8 and article 9. so in summary the evidence is becoming a lot clearer that assets are being shifted to more sustainable companies and causes and we now also have for the first time the academic evidence that indeed sustainable companies tend to do better over longer time periods and last march you recall when we had the negative impact of the covet crisis on financial markets and markets corrected heavily in march you saw that financially sustainable companies as measured for example by the fidelity sustainable rating outperformed the rest of the market so there's high confidence now that sustainability is going to be part of that new way of doing investing so in closing how do we bring the three key elements more closely together european private capital which is needed uh maurya you alluded to that asia offering opportunity but also the sustainability factors really becoming mainstream and the european union you know gladly has put a renewed emphasis on the capital markets union i myself attended some of the eurofee conferences where this is all being discussed and with the high level group that has defined 17 different measures to further you know a coming together in europe around capital markets and allowing access to individuals while providing a much more disciplined approach to sustainable investing is a very welcome additional you know push by the public entities across europe and they will help close the gap that maury alluded to which is quite substantial closing the gap between the damage that was done to economies across all of europe including italy we see it in the in the sme sector we see with larger companies and the additional funding that will be needed and help bring additional private capital individual capital in particular to the fore uh the renewed the revised plan around the piano in the the piano individuality respiring in italy i think is a good example that by providing tax incentives and lowering minimums we can actively encourage private investors to participate so we think along those lines there will be a lot of developments but us as advisors to individual investors and to institutional investors we will need to keep these three elements very much in front and center of our minds thank you well you touched upon many aspects and my question at this point for anna gervasoni well you spoke about investments in private capital sustainability etc my question for anna is as follows do you think that there is a strong potential demand which is uh involving these sectors but perhaps companies are too small or they do not comply with the sustainability uh objectives so perhaps the market is not yet ripe enough and so the question for anna gervasoni is whether she thinks that there could be a bottleneck in the world of private equity because in italy we need a private capital in the companies the private equity sector is growing a lot but it remains very small as compared to other countries in particular anglo-saxon countries and also in terms of the actual needs of the companies so my question is can private capital the private capital sector be big enough in order to comply or to support the requirements that are present now can you hear me yes well good morning it's a pleasure to be in trento in a virtual way thank you so much for your invitation well a lot of thought has come from christian staube i will try and answer your question well first of all there is an issue which has to do with the development as has been said in many meetings italy is a country where there are many private companies valuable companies and the issue is to trace the best companies which could make a leap forward and give them the necessary capital so this is the role of the private capital market but behind that there is the issue of sustainability today the private capital market is small in terms of its potentials but we should uh take a different perspective just to give you some figures last year in italy in terms of private equity venture capital we invested 10 billion in our non-public companies certainly we can do more to reach the situation of other countries such as france and germany we did 400 operations in these other countries they made 1500 operations or even 2000 operations so how can we increase the flow of this capital well let's recall that the private capital market so private equity which means investments in mature companies which need a new organization and venture capital which invests in startups and private data which gives a mid and long-term finance to companies and infrastructure investments well this whole sector is inhabited by pan-european operators and italian investors the pan-european ones can be in paris london or amsterdam and they don't have a flag so to speak a national flag these are investors who invest in europe so we should have the appropriate conditions in italy so that a big investors who collect some billion euros may use their resources in italy well i have to say that also last year big pan-european funds private equity funds in particular invested a lot in italy and they were very satisfied because the performance was very good so we need to continue to keep this situation and the door open and offer good conditions now what about the funds there are many funds the issue is to attract capital knowing that there is a huge uh amount of these uh funds which are continuously growing so these investors are very active in terms of esg they do not invest if there is no project in terms of esg or and sustainability this is written in their statutes in their regulations and this is what also the european union states we invest in non-public companies which have no obligations in terms of reports and so they are not obliged to comply with those requirements but if a company wants to attract a private equity fund that competition should commit itself to improving their sustainability so we're now working a lot uh also within our association in order to define guidelines and help our members become active engines of sustainability in their target companies where they have already invested or they want to invest in and currently we have 1500 of these companies and then there are so-called local funds italian funds which are smaller they invest in smaller companies and they carry out a very important role italian funds are too limited in number and in size so the big effort is to channel more capital more equity coming from institutional investors above all italian investors i'm thinking of insurance companies uh banks etc because these uh give too little uh money to little equity and then activate the the uh private savings which however should be seen in different from a different viewpoint because it can be also a retail uh market so there should be differences in terms of balance of investments risks and the uh safeguard of the savings so this is a rather complex issue a very topical one and we have to try and have a larger quantity of capital to invest in our companies italian funds by definition invest in italian companies and there are some italian funds which are trying to invest in the international market together with their target companies so they're helping their companies uh grow and buy other companies which are included in the mother company so all that means to make a big effort not only in terms of investments but also in terms of working methods we have to work together with the managers who manage these companies and who are certainly determined to change because they want to become champions in this new world and we hope that they certainly become that in order to yield to give a yielding to those who invested but also in order to generate a new generation of entrepreneurs who will hope will guide the economy in our country just one figure currently in europe private equity investors have an overall uh um employment of 10 million uh staff which is more or less the whole uh labor market of portugal just to give you uh data for comparison so this big number of staff of employees who work in private equity companies have a job uh which is uh growing at a fast rate so it's new jobs uh also many jobs dedicated to women because there is a focus on gender equality a very fast question before going to lucrezia well you spoke about foreign investors coming to italy how do they what's their opinion about the reforms of the government of the italian government in terms of bureaucracy justice do you think that there is a change in the in their attitude thanks to these reforms or is it too early well i can speak only about those who um i know of well the people i talk with so the big managers of uh private capital uh in europe well they um we are looking for those uh reforms and they are looking for those reforms and they hope that they can do more in italy thanks to these reforms and some of them are coming back to milan to work okay now the flow to raichlin now let's speak about the state now which is the main focus of the festival of trento and it's also an important protagonist what should be the role of the state in trying and favor the arrival of private capital can it have a direct role or a role as a facilitator so there is a problem we cannot hear problems well good morning actually the state supplies several rules first of all an economic one the state has been the protagonist of the crisis much more than in the previous crisis and has supported liquidity which was the right thing to do in the acute moment of the crisis so this means that now that the economy is recovering were sort of hibernated and the state has to decide first of all for how long support will be provided in terms of liquidity ideally this means moving from supporting liquidity to different equity and private partnership tools moreover the role also has to provide macroeconomic support we should not forget that investments requires financial macroeconomic stability and the state has to guarantee that making use of monetary and fiscal and regulating instruments also reforming some important aspects of our mechanism to facilitate the market of capitals well right now we've just heard about this huge equity gap i'm a little bit more conservative regarding the assessment of the size of the equity gap in europe however for sure we're experiencing a situation in which the state cannot discontinue support even if we are recovering however it is necessary to rebalance activities and instrument it is necessary to understand for which company the state should be activated there are healthy companies that have been supported during the pandemic and in that case the support should be tapered and eventually discontinued since it has a high cost and it is not necessary any longer then we have companies that require some further guidance so the state should actually focus on this large sector of intermediate companies that are that were economically healthy prior to the pandemic they have a huge debt right now and they're financially vulnerable with difficulties at obtaining credit and requiring some extra capital so should the state do something in this sector or should the market take over through instruments like private equity investments well during the pandemic there has been a discontinuity between access to credit and economic prospects the market is malfunctioning and does not manage to match this banks are too risk averse to support these companies and to give them credit therefore equity instruments are justified let's presume that the private equity sector is not investing sufficient amounts of money because they do not internalize the costs of repetitive bankruptcies that could take place due to the disconnection between economic and financial viability so in that case the state action is possibly justifiable let's have a look at the data these are data provided by skivardi and we can see that in italy during the pandemic there has been a huge migration companies that we're doing fine have transformed into fragile but still viable companies that demands to approximately 38 according to skivardi these companies are predominantly smaller medium enterprises which are the backbone of the italian economy so 30 percent of small and medium enterprises this is a huge area in which the state can take measures together with the public sector but first we have to identify these companies and also mention that it's also private equity issue because the situation is very fragmented the state most likely does not have the adequate instruments to identify this category of companies that are economically viable but not financially viable and which tools could be used there is an idea that is spreading in europe and italy according to which the private sector should identify such companies since they have the expertise to do that and the state could then enter into partnerships with temporary equity or near equity instruments this is justified by the present market failure since the financial system does not manage to efficiently allocate capitals and there are many different possibilities one of which is that the government provides quasi-equity in very generous term but this is conditioned to a private equity intervention and has to meet certain parameters for instance there is a very interesting experiment in france and we're thinking of something similar in italy as well but of course there are many different problems in this private public partnership for it to be successful a very solid government is required both in companies and in societies we're talking of transparency accountability and we need the so-called fiscal space to be able to do that and we know that italy has a huge debt and some governance issues so this is certainly a critical point where the state can take other steps like reforms for instance secondly there are many challenges in the design of this kind of policy for instance being the manager of a fragmented equity support for small enterprises could be something too complicated for the state machinery you also need asset strategy because this should be a temporary intervention given the fragility of the company and the specificity of the pandemic so we really need to think carefully about all those issues and on top of that we've got the real problem i.e if the state does something this means that the capital market in italy and europe is not working in the appropriate way therefore we should focus on reforming the european capital markets like also mrs halp mentioned well this is certainly a fundamental topic you are actually stressing a theme and i would like to expand on this uh there are many different proposals of different state instruments afmes made one at european level we have an italian one well the concept is a lot of money is required to recapitalize companies and the private equity world is not big enough compared to the present need and many companies fear a dilution of their ownership because if a private equity fund invests in a company the owner may no longer be the majority so the idea is that of creating hybrid instruments for private investors so quasi equity instruments that provide companies with capital without reducing the power of the majority shareholder well this proposal was actually developed in germany at the beginning of the crisis when we were thinking about the possible tools and most of the economies focused on liquidity some economists proposed a fund for european equity or these quasi-equity instruments which means that the state is not becoming a shareholder and this or may actually cause the problem accompanies over dilution of the capital so there are many different proposals also linked to tax incentives for instance well we have to say that italian companies are very very small so it is very difficult to intercept them and we're talking of instruments that cannot be developed for micro company and we have so many of them however for sure this is an interesting point i didn't know that that sonima had made a proposal but this is in line with other european proposals well i would like to know mrs howell's opinion about this we have just said that private equity is very important for global investors to have higher returns but private equity is not free of risk the lack of liquidity is the number one so they cannot allocate a high percentage which would be the optimal percentage for a fund like yours to be used for private equity and then i have a second question do you believe that supporting private equity with a market um that can be reformed at european level provided with quasi-aggregated instruments to promote new capitals for companies without well thank you for the question and i want to you know touch on on a couple of things that both anna and other lucrezia mentioned there was a lot of discussion around the european private equity sector being sizable that's true there was discussion around the attractiveness of in particular you know italian medium-sized companies to attract money from these large institutional investors very very true the missing link is though that we need vehicles and ultimately individual investors that are convinced that investing in these funds and diversified private equity portfolios is indeed a smart thing to do now the good news that we have experienced during the covet crisis amongst so many bad things is that individ individual investors have started to become a lot more interested in new asset classes and new ways of investing we saw it with a lot of the trading volumes going up retail investors trying you know direct investing in equity as an example we've also seen some technology evolve around online dashboards where individual investors can very easily consolidate their portfolios and their holdings and we have seen financial planners starting to incorporate additional asset classes like the ones i mentioned in my prior comment whether it be asia or whether it be a private equity or private debt but you're right moria in terms of pointing out that investing in private markets is different it's different on a number of fronts we know by the way that the number of publicly listed companies has gone down in recent years quite significantly so in many of the mature markets where the number of public listed companies are now maybe around half of what they were uh even 20 or 25 years ago so so the attractiveness of private and direct investments has clearly increased but in terms of risks you're right in saying that the illiquidity element is one of the key things we need to look at i would add there's others for example the minimum investment size many of these large private equity funds require you know tens sometimes hundreds of thousands of euros of minimum investment which from a retail perspective is not really the right way to go about it in terms of illiquidity indeed there is now secondary markets that are starting to develop also in europe where even if you make an investment into a fund which has a seven or eight year lifetime and you want to exit that fund sooner there's a secondary market where trading indeed is starting to take place and that's an important feature to bring more retail more individual capital into the space i would also say that the financial regulation the eltif which is the european the preferred european vehicle has seen you know some renewed attention and we see with many private equity funds coming from the u.s or from europe that are starting to deploy the eltif as their preferred vehicle so the philosophy is really about democratizing democratizing assets that are in private hands and the way to do it is we need technology to be the intermediary because remember there's a third challenge in addition to liquidity and minimum size there is the process to invest into private equity funds because they get raised over a certain time period there's a capital commitment phase then there's a capital drawdown phase and then there's the capital repayment and all of that is quite cumbersome in terms of the contractual steps the legal steps that need to happen between the investor and the private equity fund and therefore developing digital tools that allow for an ease operating platform so that private money individual retail money can flow into this funds is absolutely critical at fidelity we're working with a fintech company called moonfare a european company that is doing exactly that they're digitizing the entire access and development process for investments into private equity and private debt so yeah asset managers have a big role to play and i would add education is another one that maybe if we have an additional minute we should talk about at some point because it's the investor that needs to be educated to be comfortable and reliable as an investor in this space well our country has a huge amount of rules and regulations and laws which sometimes contradict each other and there's sometimes hinders or stops investments so i spoke with you often about that do you think that we're going to solve this problem and then the second issue is uh uh has to do with the um people who can involve invest in private capital so to lower the threshold to 100 000 euros so not small investors but medium-sized let's say investors so what is the situation like well there are many companies they are different and we always need to start from real economy in terms of micro companies we need to have some instruments and for a small and medium-sized companies we need other instruments well to think that the private equity market is a panacea well that's wrong in italy there are 350 operations a year and the issue would be to have 1 000 of those operations every year that however would not uh solve the problem so we need to have various instruments suited to different types of companies if the state directly manages funds and companies well in my opinion we would have big problems uh because in my opinion the role of the state is different now what about incentives the state can provide incentives so that the instruments are work better and can attract capital now we spoke about savings and the thresholds now in terms of rules and regulations we don't have problems in italy the private equity market is very well regulated we have a european regulation so we don't have a problem with the rules perhaps we have a problem with the targeted allocation of incentives so and we have the issue of private savings so we spoke about the private equity market with all the technical problems of liquidity yield well to transfer data to the private market would be crazy so we need to have instruments which are suited uh for other investors and organize our market in a different way now what about thresholds now we have alternatives which are a fiscal blanket for these instruments well we must be very careful because when we speak about savings we should know what we're talking about a saver can have 500 000 euros or 2 million 10 million euros and these are completely different uh situations with different needs in terms of liquidity and investment when we speak about thresholds for so-called vehicles are dedicated to institutional investors that is private equity funds which have certain rules and which are normally sold to institutional investors while these could be sold to private uh high-ranking private investors who today can already invest in these instruments and in italy the threshold is 500 000 euros well uh we would be in favor of uh lowering that threshold so that people can invest 100 000 euros 150 000 euros which is a decent amount of money and they could invest in a vehicle which can give a good yield without the problem of liquidity because they have other money so if they need to do other things so they can demobilize other investments so we have to look at each investment and what is the percentage on the total portfolio so to lower the threshold would mean that instead of a situation where we have a wealthy person who can invest in private equity only if that person has 500 000 euros so and that person should have a five or 10 million euros well that is a bit too much so let's lower the threshold so that that person with three or four million euros can invest 100 000 euros in that vehicle and then there is another world which is the retail world where we have to be very careful because also 1000 euro can be an issue if we speak about liquidity because the vehicle is a very complex one so to do that we need to have instruments which are dedicated to this public in italy we have big fiscal incentives enabling these two different classes to invest in this type of asset class so we need the most appropriate and suited instruments and well a very clear answer i would like to go back to lucretia reichlinger you spoke about the issue of private capital going to companies and you said that we need infrastructure the european union is working on the capital market union do you think it is useful um and to which extent well the capital market union is essential in the project of financial integration it is uh absolutely needed in order to have that amount of liquidity which is necessary one-third of the financial assets of families in the european union is in banks with an interest rate equal to zero so not only in italy but in europe we need to take that money and direct it towards other investments of course not all the countries are the same we have france and the netherlands for example which have a more developed capital market and italy and spain with a less developed market however the size of this market is huge and everybody is aware of that but for some reason this project of the capital market union is going very slow above all in areas which are a national prerogative for example the laws on bankruptcies etc so here we have heterogeneity in europe and we would need to have a equal the same laws so otherwise the market that we remain fragmented and so non-attractive for investors in terms of bankruptcy law well that is a very important issue in order to accelerate the issue of company liquidation so that can have an effect on the market so we need also other reforms for example for insurance companies where the there are disincentives so that insurance companies cannot invest in the long period in terms of equity and then there are cross-border obstacles issues of transparency and fiscal policies so there are there is a lot of heterogeneity um it's nevertheless a very important uh topic uh which goes on in under with the reform of the banking union and it is possible to progress so to make progress only if there is progress in terms of instruments political and regulating instruments so things are going on but i'm not so optimistic we in europe continue to have a very small market and this remains a structural problem so the more europe will be integrated and the better it will be there is a general issue about europe where is europe going certainly we have made steps forward also under the pressure of the pandemic but we are at a turning point either we go on or we go behind we go back thank you if we look at the example of the banking union so uh just uh uh half of the things have been uh implemented so this is a very slow process unfortunately time is running short we have not discussed in depth all the issues but we have had a lot of points which have been touched upon we see that there is determination by all the actors so thank you so much i would like to thank anna gerbazone lucretia raiklin and christian staub and have a nice day you