Over the last few years, due to the effects of the 2007-2008 financial crisis and the reduced capacity of the banking system to act as the sole source of financing, Italian companies have intensified their recourse to the international capital markets, both to refinance the existing bank debt and to support its growth prospects. This phenomenon is even more significant when seen in the economic context of our country, historically characterized by an excessive weight of conventional bank credit compared to alternative sources of financing.
These are some of the findings of the study carried out by the Baffi Carefin Department of the Bocconi University prepared in collaboration with Equita SIM which were analyzed at the conference held yesterday in Milan entitled “Does investing in Italian capital markets pay? The past decade perspective – Presentation of Research”, which saw the institutional participation of Carlo Calenda Minister of Economic Development, as well as that of Gianmario Verona Rector of Bocconi University, Andrea Vismara Head of Investment Banking Equita SIM, Alessandro Profumo President Equita SIM, Nerio Alessandri President and Chief Executive Officer of Technogym, Tommaso Corcos President of Assogestioni and Chief Executive Officer of Eurizon Capital SGR, Anna Gervasoni General Manager of AIFI, Francesco Perilli Chief Executive Officer of Equita SIM and Guido Rivolta Chief Executive Officer of CDP Equity.
The protracted difficulties of our banking system - continues the conclusions of the study - have further strengthened the importance of the capital markets and, for the first time in several years, the markets have also gained a relevant role in the definition of economic policies of the most recent governments. In this context of increased need to raise capital – despite the Italian stock market as a whole being negatively impacted by the performance of the banking sector – many Italian companies have recorded good performances and often the securities issued by them in the last 10 years have been a source of profit for investors.
The study – presented by Stefano Caselli Pro-Rector for internationalization at Bocconi University and Baffi Carefin and Stefano Gatti Full Time MBA, SDA Bocconi and Baffi Carefin Director – also underlines how Italian equity would have guaranteed investors attractive returns if they had carried out an effective stock picking and, rather, had focused on medium-sized companies, belonging to sectors of Italian industrial excellence (such as Fashion, Food & Beverage and Automotive, together with other emerging players in the field of e-commerce) and with robust fundamentals . For example, the FTSE STAR, an index that includes most of the most virtuous medium-sized enterprises belonging to strategic sectors of Italian industry, showed a buy-and-hold performance of an average annual 2% to which a further 2,7 must be added, XNUMX% annual average relative to distributed dividends.
In line with the results obtained in the listed equity sector, investments in Italian private equity also offered excellent potential for returns during the period considered. According to data reported by AIFI and KPMG, the average gross IRR over the last 10 years was 8,8% annually. This result must be interpreted even more positively because it was obtained in a context of increased disinvestment difficulties, consequent to the fact that at the beginning of the period the funds had purchased at higher entry multiples favored by the easy access to financing in the period preceding the crisis. Turning then to the debt market, the general trend was that of a decline in yields for Italian corporate bonds.
This decline indicates, under normal circumstances, an improvement in the credit quality of issuers. Conversely, both financial and industrial issuers have been affected by rating deterioration, mostly related to the economic crisis. This inconsistency is explained by the extraordinary monetary policy measures implemented by the ECB. From a relative perspective, Italian corporate bonds have guaranteed higher returns than other European countries, mostly explained by the sovereign debt crisis and by a higher country risk, despite the solidity of corporate fundamentals (demonstrated by the very low incidence of bankruptcies during the severe economic downturn).
They summarize – Professors Gatti and Caselli of the Bocconi University – that “this year's study analyzes in a more critical way the clichés that characterize the Italian market and demonstrates that, even among the many difficulties imposed by the economic and financial crisis, the industrial companies belonging to the Italian fabric have been able to guarantee returns to those who have placed their trust in them”.
Francesco Perilli, CEO of Equita SIM, comments positively on the institutions' work: “We are very pleased that the 2017 budget law approved a series of tax incentives aimed at increasing the number of domestic investors in equity and debt securities of Italian companies and that these initiatives, for the first time, will incentivize both institutional and retail long-term investors. We expect these measures to have a significant impact on our capital markets and we are sincerely grateful to the government for taking these vital steps."
Andrea Vismara, Head of Investment Banking at Equita SIM, identifies precise initiatives to be undertaken to stimulate the growth and efficiency of the capital markets, including: more widely promoting the positive performance of companies belonging to the Italian excellence; improve and simplify legislation (including tax legislation), in order to encourage companies to use the markets; promote the asset management industry in Italy and the emergence of new domestic investors, especially long-term ones dedicated to Small Caps; streamline the regulation that weighs on the markets, also through the modification or revision of recent initiatives such as Mifid 2 and MAR; develop a strategy to support the investment banking sector with particular attention to the sector which also serves small and medium-sized enterprises by removing the typical conflicts of interest of lending banks (as occurs today in the United Kingdom) or by providing tax incentives for research activity.
Alessandro Profumo, Chairman of Equita SIM, also underlines the importance of a solid capital market, necessary for the numerous virtuous Italian companies to be able to continue their path of growth and shareholder remuneration: "In my professional experience I have seen many Italian companies valid, with important growth stories and capable of competing in the European and global context, giving great satisfaction to all their stakeholders, shareholders in primis. But also many businesses, especially small ones with a strong entrepreneurial vocation, penalized in their development potential by the – de facto – absence of alternative sources of financing to the banking world. Developing an effective capital market in Italy is not only a priority for businesses, but also profitable and compatible with the returns required by investors. In this context, Equita SIM, which has been a strong and innovative player in the financial markets for over 40 years, has greatly contributed to their evolution and is committed to promoting their future development".
