Private investors clamouring for private equity

Simone Cimino, chairman of Natexis Cape, the Milan-based private equity investment affiliate of French institution Natexis Banques Populaires, is seeing an increased appetite from wealthy investors for private equity stakes.

When he raised ?120m for a fund investing in Italian companies in 2004, an unprecedented ?30m of this came from what he describes as “100 medium net individuals, with a ?300,000 commitment each, mostly from Northern Italy.”

Most of these are entrepreneurs, tax advisers and lawyers, with whom he has previously worked on

private equity buyouts, sometimes investing in their enterprises.

He puts this new trend down to two reasons. Firstly, wealthy individuals want some control over the risk to which they are exposed, which they can get through participation in private equity. Secondly, businessmen with a social conscience increasingly want to see some results from re-investing in the communities, which have made them profits in the past.

“If they give ?300,000 to a bank to invest in an open-ended fund, they don’t know what that bank is buying or selling each day. They are blind. But when they receive a notice of investments from me, they know where their money is going. They feel very close to us. They can control their risk, rather than just be chasing money.”

There are two ways to look at private equity, believes Mr Cimino. It is either a money-chasing business, which strips companies to their bare bones and does not create any value, or it can work in a way to benefit the landscape in which the companies operate.

“In the long term, excessive returns can destroy social value,” he says. “Fewer people with fewer jobs means fewer customers, and it is not sustainable.”

The ability of banks, particularly French ones, to package up tranches of private equity investments as underlying instruments for structured products is likely to gain momentum, believes Mr Cimino.

“French banks create a package of investments

in French, Italian and Spanish ventures, repackage and break them down and sell them on through other

banks, leveraging their local distribution. In my

opinion, we are already mid-way to the retailisation of private equity.”

Cimino: businessmen want to invest back into communities