Opening Italian alternative funds to retail clients’ investments

Investment regulations are constantly evolving, generating innovation and new solutions for investors. We talked about it with Giovanni Carotenuto from Carotenuto Studio Legale, an independent law firm with an international vocation.

On 15th March 2022, the Decree of the Minister of Economy and Finance no. 19 of 13th January 2022 (the “Decree”) was published in the Official Gazette, which amending the Ministerial Decree no. 30 of 5th March 2015 in order to redefine the conditions for participation in Italian alternative investment funds (“AIFs”) by retail clients, holding medium/large assets. The Decree will come into force on 30 March 2022.

What is an undertaking in a collective investment scheme and which are its main features?                             

Pursuant to Article 1, paragraph 1, sub-paragraph k), of the Legislative Decree no. 58 of 24th February 1998 (the Consolidated Law on Finance; “CFA”) an undertaking in a collective investment scheme (“UCI”) is a “body set up to provide the service of collective asset management, whose capital is obtained from multiple investors through the issue and offer of units or shares, managed upstream in the investors’ interests and independently by the same, and also invested in financial instruments, credit, including credit backed, in favour of subjects other than consumers, by the UCI’s capital, equity or other fixed or non-fixed assets, on the basis of a predetermined investment policy”.

In brief short, UCI’s purpose is to allow investments of sums of money in through financial instruments (e.g., the UCI’s units) of sums of money collected from professional and retail investors on the basis of a predetermined policy, which includes a description of the level of risk related to such investments.

UCIs can take the form either of mutual funds or investment companies (namely, investment companies with a variable capital (i.e., SICAVs) or investment companies with a fixed capital (i.e., SICAFs)). The investment in the latter amounting amounts  to becoming a shareholder of the company in question.

On the contrary, a mutual fund requires the appointment of an asset management company whose assets are distinct and separated from those of the mutual fund managed. As a result, investors receive a fund’s units in exchange for the capital invested therein.

As part of the wider family of mutual funds, AIFs are specialised alternative funds, professionally managed with the aim of achieving absolute performance, independent of market trends.

Which are the main novelties introduced by the Decree?

As a general remark consideration, the Decree has changed the thresholds for making investments in AIFs. Indeed, beforehand, only the following subjects were entitled to purchase in AIFs’ units:

  1. professional investors (i.e. clients who possess the necessary experience and expertise to make their own informed investment decisions and properly assess the risks they take, such as banks, investment firms, other authorised or regulated financial institutions, insurance companies, collective investment schemes and related management companies, pension funds and management companies, large companies that have at least two of the following requirements: their total balance sheet is equal at least to  € 20,000.000; a their net turnover is equal at least to € 40,000.000 and owns funds of at least € 2,000.000);
  2. retail investors who invest a total amount of not less than € 500,000.00;
  3. asset management company’s Board members and employees without any entry threshold.

From the entry into force of the Decree, AIFs can be subscribed by:

  1. retail investors who, within the ambit of an investment advisory service, purchase AIFs’ units for an initial amount not lower than € 100,000.00, provided however that the total amount of such investment does not exceed 10% of their financial portfolio and takes into account that the initial minimum subscription cannot be split.
  2. individual portfolio managers purchasing AIF’s units on behalf of retail clients for an initial amount not lower than € 100,000.00.

As a result, which opportunities for investemnt in AIFs are now available for retail clients?

AIFs are investment funds characterised by: the absence of a link to a particular benchmark, the presence of a fairly high potential return and, consequently, a medium-high risk profile. Moreover, AIFs have a low correlation with the various equity and bond markets.

As a consequence of the entry into force of the Decree, retail investors with medium/large assets are hence being offered the possibility of gaining returns on their investments even when the market trend is in a negative phase, yet bearing at the same time the related risks.

In light of the foregoing, access to these forms of alternative investments to a wider category of potential investors in medium/long term illiquid assets and unlisted companies, may result in increasing portfolios diversification, achieving appreciable returns, and at the same time, providing alternative sources of financing Italian unlisted companies (particularly, SMEs) and fostering Italy’s economic recovery.

The Decree has also established that intermediaries purchasing AIFs’ units on behalf of retail clients and those advising the latter to subscribe to such units must know the financial instruments purchased or recommended, as well as assess their compatibility with their (actual or potential) clients’ best interest. In addition, the latter must provide the above intermediaries with accurate information on concerning their financial portfolio and other investments in AIFs.

How will these novelties impact on an innovative and agile reality such as the Fintechs in our community?

In this scenario, Fintech companies may benefit from the opening of retail investments, particularly in the venture capital and private equity sectors. Given the constant need for higher investments in the real economy, the novelties introduced by the Decree represent a potential boost in the alternative funds’ market, increasing, in turn, the ability to raise capital for the development of start-ups/SME’s with greater development potentials, amongst which we find Fintech companies.

Bitpanda is changing the way the world views investing

Bitpanda is a well-known name in the fintech world, it has also arrived in Italy and immediately entered the Fintech District community. We met Orlando Merone, Country Manager Italy, to hear about Bitpanda’s projects and objectives.

What does Bitpanda do and who is it for?

Bitpanda is a fintech company based in Vienna, Austria founded in 2014 by Eric Demuth, Paul Klanschek and Christian Trummer. Bitpanda has been working on making investments accessible for everyone for six years now. Initially offering cryptocurrencies, the company developed itself by adding tokenized digital assets such as precious metals, and now, fractional stocks, to the platform, allowing anyone to start investing with a minimum of one euro. Bitpanda has over 3 million users and over 500+ staff members from more than 50 nations. We’re levelling the financial playing field and changing the way the world views investing.

How are you entering the Italian market and what do you expect?

We have a very local approach. Italian can use the Bitpanda website and broker platform, the Bitpanda Helpdesk as well as the Bitpanda App, in their language. At Bitpanda we believe that language shouldn’t be a barrier for our users. Soon the Bitpanda Academy will be available in Italian as well. Italy is the company’s first expansion in 2021 and an important part of Bitpanda growth. It is obvious that the Italian people are ready to welcome the innovation that fintech has to offer and we are more than thrilled to be part of the process. All of this looks very promising for our business development. Bitpanda’s goal is to become the biggest European biggest investment platform, and the same goal we have in Italy. Our plan for this year is to double our user base as we expand our team operating from our new office in Milan.

Do you have open innovation projects, collaborations or partnerships in mind?

Actually, we are working on a new B2B2C solution to forge partnerships with banks, asset managers, and other fintechs who are willing to plunge into uncharted waters of online-only financial services. This means we are in ongoing talks with banks and financial institutions here in Italy. Partner companies can rely on Bitpanda’s technical infrastructure for fractional 24/7 trading across all our asset classes, stocks, crypto, metals.

How is your team composed and how is it growing?

We’re growing really fast and we need new people that are willing to help us grow even faster. This is why we are opening a Talent Hub in Milano. There’s a massive opportunity to really reshape how people see personal finance and investing, and we have no plans to slow down now. Our expansion into Italy will allow us to attract the talent we need and support our vision to build new technologies for the future. We are currently looking for talented people to join our Milano office, in the Growth and Marketing team, but also to support us with everything related to compliance, as Bitpanda is fully regulated and places great deal of importance to this topic. We are also looking for new team members to join for local support and community building.

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Cirdan Capital, a financial boutique interested in Italian fintech

Cirdan Capital is a financial boutique dealing exclusively with the issuance of structured products for the European public. It has existed since 2014, is based in London and is regulated by the Financial Conduct Authority. A few months ago it became a corporate member of the Fintech District.

“Our activity consists in creating tailor-made investment financial products for the needs of all clients. Ranging from the largest administered funds to the largest investment banks, from private banks to pension funds and retail clients – explains CEO & Founder Antonio De Negri – We make our products available to everyone on several European stock exchanges, in France, Germany and especially in Italy which is our main market. We address an extremely wide audience trying to satisfy all needs and requirements and the different types of investment and market vision that are never uniform”.

Cirdan Capital has always had contacts with the fintech world even if it is not considered a fintech company rather a company that makes Tech for Fin. “We offer a series of technological solutions to our partners that allow them to develop those applications necessary for making a series of investments usable – explains De Negri – We are an investment provider, we offer investment solutions as a service giving the possibility creating and managing all those range of solutions that can be invested on the market required by the different platforms. Over the years we have developed very important partnerships in the fintech sector covering the part related to investment that is our core business and where we have always left an imprint of uniqueness and differentiation for the end customer”.

By joining Fintech District, Cirdan Capital expects to “see a series of beautiful initiatives and opportunities to meet new people, confront each other, develop new ideas, bring our messages and understand how all this activity around the world of fintech in Italy is moving and developing – concludes De Negri – We want to give our contribution. We think we can do this in terms of development, innovation and research and also in terms of support and growth of all those companies that are like we were six years ago with great ideas, great ambitions and great projects, with a great desire to develop them all perhaps by finding a partner like us, that can help them grow.

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FD Marketplace. Interview with Leyton

Leyton advises clients all aspects of innovation funding, energy consultancy and capital advisory. We have chosen to include this firm in our marketplace convinced that it can contribute to the growth of the fintech ecosystem. Francesca Filippi will tell us how.

From your point of view, how will the 2020 trends in startup funding change?

Crises, especially this one due to the unpredictability of the pandemic’s evolution, have by definition a highly dynamic path, which forces to quickly adapt to changing, with constant reviews of forecasts and models and mind-sets. History has taught us, however, that crises also bring opportunities: the impulse to innovate and accelerate the path towards digital transformation are among the main ones of this crisis. Innovate to develop and bring to the market new solutions to fight the virus and face the new way of working and interacting socially that will await us at the end of the health emergency.
In the context of uncertainty that inevitably characterizes a crisis, we can assume, a slowdown, rather than a decline, in investment by venture capitalists and business angels, accustomed to investments with a degree of uncertainty. Increasing attention will be paid to the analysis of the opportunities to be financed, focusing on the ideas and start-ups that will be able to face the crisis and the areas in which new opportunities may arise, including Fintech and Insurtech.
A more structured government intervention in support of the Italian start-up ecosystem, the main driver of innovation in Italy, as requested by various associations, is advisable. At the Italian level, the first steps are being taken, through the specific liquidity support measures contained in the so-called “Decreto Liquidità” but also thanks to the Fondo Nazionale Innovazione. At European level, the launch of the European Scale-up Action for Risk capital (ESCALAR): a new pilot programme which invests in funds with an investment focus on scale-ups, to address the financing gap experienced by high growth European companies.
The entire Italian ecosystem, which now has over 11,000 innovative start-ups, almost 1,500 innovative SMEs, together with over 30 certified incubators, for a total of over 60,000 employees, is an asset to be safeguarded.

Three tips for startups/scale ups who want to move for funding today

As written above, access to funding sources will become increasingly competitive, whether it is fundraising or access to non-repayable and/or subsidised grants. In this context, agility, creativity and flexibility, which already characterise start-ups, will become even more rewarding factors.
Anticipating change, identifying new trends generated by the crisis and riding them according to an opportunistic approach will be a key success factor for access to funding sources.
Understanding the as is of one’s own reality and redesigning the to be towards the sectors “facilitated” by the crisis will allow both to be more attractive to funding bodies (venture capitalists or angel investors or financial or public institutions) and to identify the best funding opportunities available at regional, national and international level.

In a global ever-changing context, proactivity and resilience are “must to have”.

Relying on experienced professionals in innovation and investment consulting and financing, who can assess new trends and opportunities and the most suitable sources of funding, will accelerate the success of winning ideas.

What kind of services can you offer?

Leyton is a global innovation funding specialist, with more than 20 years of experience, dedicated to helping companies of all sectors and sizes improve their business performance. We offer a global and integrated approach to support innovation and fundraising. Even more during these uncertain times, Leyton wants to ensure that businesses are leveraging the tax and grant incentives available to them and optimising their financial performance.
We help start-ups, that are seeking investment from an investor, to identify successful new business, analysing the business contest and creating solid business model and business plan.
We identify tax reliefs, such as R&D tax Credit, to support innovation and investments, assessing eligible activities and costs and drawing up all necessary documentation. Grants-wise, we scout, at national, regional and European level, the financing opportunities best suited for fostering innovation and growth of each company at. We support companies throughout the whole process to obtain grants, verifying the eligibility requirements, developing the project proposal (writing and proofreading) and managing the relationship with funding bodies.

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Crowdarena, the first ad portal in Europe to trade shares of startups and SMEs

Opstart has launched Crowdarena, the first ad portal in Europe to trade shares of startups and SMEs, responding to the liquidity needs of investments with equity crowdfunding. General Manager Giovanpaolo Arioldi illustrates what this is about and also comments on the current situation and what could happen in the fintech sector.

What’s Crowdarena? Why is it a turning point in the Italian crowdfunding equity landscape?

Crowdarena is an ad portal dedicated to crowd investors, a virtual place where we facilitate matching between those who want to sell and those who want to buy shares of startups and SMEs that have successfully completed an equity crowdfunding campaign on Opstart.

The project was born from an idea of ours, presented at Consob in 2018 with the Beta version of the portal. It was called Crowdtrading and provided a much more extensive functionality. On the basis of our initial proposal, a compromise was reached with the authorities that led to the amendment of the European and Italian regulation on Crowdfunding Equity, through the introduction of the concept of “bulletin board”, i.e. the possibility for managers of portals like Opstart to create a bulletin board for crowd investors. This is a first, but important step,towards a secondary market.

How does it work and who can get in?

Anyone can access and view the advertisements published. To publish an ad, however, the user must register and fill out a form with information about the shares he wants to sell or buy. The ad is first checked by our team and then made public. Once the ad is online, other users will be able to contact the investor directly and trading will take place privately, as required by Consob regulations.

What exclusive advantages does it provide, compared to the Italian scenario?

Crowdarena is at the moment the only authorised ad board at a European level and this gives our investors a huge advantage and one more tool to find buyers of their shares. Companies, on the other hand, have a showcase on a portal frequented mainly by investors interested in the world of innovation.

Equity Crowdfunding in Italy from a regulatory point of view. Is the current CONSOB regulation in your opinion adequate or would it need further changes? If so, which and why?

We are satisfied with some changes introduced by the new Consob regulation that came in force at the end of October 2019.In particular, the fact the legislator has given the possibility to equity crowdfunding portals to open up to debt instruments – minibonds and private debt. This step represents a great opportunity and we decided to seize it immediately. We are the second portal to get authorisation and soon our division, Crowdbond, will be active. On the other hand, Consob has been more restrictive on the rules for the announcement board. Initially, we had requested permission to publish ads of all the startups that had carried out crowdfunding equity campaigns on all Italian portals, but the rules limited the option for only those campaigns that had carried out a collection on Opstart. We are waiting for an opening to the European market and the extension of our authorization to the lending crowdfunding and crypto asset or STO (security token offering) market.

Equity crowdfunding in Italy from a cultural point of view. How has the sector grown in the last few months in the country from your point of view and in which population groups?

The sector is growing at a fast pace and the data confirms this: of the over 143 million collected to date, more than 60% has been collected between 2019 and 2020. These numbers are still small but encouraging and show that more and more companies and investors are relying on this tool.

As far as we are concerned, we have noticed that it is no longer only startups that are looking with interest at equity crowdfunding, but also many SMEs with more traditional business models and the desire to grow and innovate.
Data from the crowdinvesting observatory at the Milan Polytechnic show that Opstart has the highest percentage of female investors in the market. We reach 16%, with a market average of about 10/11%. It is still a very small number, but one of which we are proud, and it gives us hope that crowdfunding equity can bring us closer to a female audience extremely undervalued by the financial world.

How do you think The Coronavirus and its impact on the economy and our habits, can impact the financial habits of Italian citizens?

From a financial point of view, citizens are frightened by the current situation, they fear that they will lose their savings and that economy will not recover quickly. It is obvious that most companies will find it very difficult to resume business once the health emergency has returned. On the other hand, there will be specific sectors that will benefit from this: some of our startups have had a peak in turnover, I am thinking of e-learning or delivery services, for example. This crisis will lead to a lower propensity to risk on the part of investors, at least for some time, as often happens after a “black swan”. Then things will return to normal and in the long term investors who have diversified their portfolios into different sectors and financial instruments will be rewarded. At the moment we are trying to propose safer investments, such as those in the renewable energy sector which can enjoy a revenue guarantee according to the laws in force.

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Italian fintech sets the pace for reaching Europe

After a 27% increase in the number of Italian Fintech startups and an ample doubling of investments in the sector, recorded from 2017 to 2018, the projections for 2019 are positive. Our country has accelerated its pace shortening the distances that separate it from other European countries so far only geographically close, such as France and Germany. Fintech District, a reference point for the sector in Italy and beyond, as well as within its own community, feels the same ferment and growing interest from international stakeholders on the one hand and on the other registers positive trends within the sector reflecting national data.

According to PWC research, the number of fintech startups operating in our country between 2017 and 2018 rose from 235 to 299: an increase of 27%. The Fintech District community has shown the same growth and 2019 seems to be a promising year. 2018 closed with 100 startups; currently, there are 122 and by the end of the year it is likely over 130 startups will be reached, marking a growth of +30% compared to last year. The most numerous are those dealing with smart payments & money transfers, lending & solutions for credit, wealth management & solutions for the financial market.

Investment in the sector is also growing, a long-awaited and very important signal for an Italy can finally be truly competitive in Europe and beyond. 2018 was an extraordinary year in this sense: there were investments made in Italian fintech for a total of 213 million euros, more than half of the total collected by Italian fintech from the beginning of their activity to date. On the one hand, investors have begun to look carefully at Italian fintech, while on the other hands, the startups themselves have become increasingly able to attract capital.

In this context, the Fintech District has acted as a facilitator, promoting meetings and collaborations between the various stakeholders, including investors. Since its creation in October 2017, more than 220 million euros have been raised. In all previous years, fintech startups had managed to raise a total of only about 170 million euros. (data calculated on the basis of Bebeez fintech report may-2019 and Bebeez fintech report march-2019)

2019 seems to be the year in which Italy will come to the table together with the other European countries, leaders of fintech on an equal footing, strengthened by the determination of the many emerging startups populating the sector and also by the opening that several big players and institutional subjects have shown. In this already positive scenario, the entry into force of the PSD2, on September 14, has shown a strong acceleration, today we can already guess the consequences that will be more evident in 2020. There are many fintech that are ready to take advantage of the benefits of open banking to take flight, at first glance one of the most crowded sectors seems to be that of services for SMEs of which Italy has many and that so far, perhaps, have been able to benefit from fewer dedicated offers.

Find out what we’ll be talking about at Salone dei Pagamenti
Read the Italian version on BancaForte

BacktoWork24 and Intesa Sanpaolo’s investment

Intesa Sanpaolo has made an investment in the capital of BacktoWork24 through Neva Finventures, the Corporate Venture Capital of Intesa Sanpaolo Innovation Center, which invests in fintech companies that are synergistic with the Group’s activities or with new business models potentially disruptive for the sector. We asked Edoardo Reggiani, Head of Business Development and Innovation at BacktoWork24 to tell us more.

How will you use these funds?

Our first goal is to widen the network of investors who are approaching equity crowdfunding. The funds raised will allow us to implement an important marketing and education activity aimed, not only at reaching a greater number of investors but also at giving them the necessary tools to make informed and responsible investments. In addition to that, the funds will be used to further structure our team, and implement new features on our proprietary platform, with the aim of making the user experience easier than it is at present and even more intuitive.

What does this operation, carried out by Intesa Sanpaolo through Neva Finventures, mean for you?

The fact that an institutional player of this size has decided to enter this market through a structured investment is certainly a strong signal not only for us but for every player in the market; it’s a sign that equity crowdfunding in Italy finally has the potential to become a truly complementary tool for other types of financing/investment. We are obviously really proud about the outcome of this round but we strongly believe this is just a new starting point. We are firmly convinced the seriousness and professionalism, that were and still are, the basis on which our business was built, are the keys to being able, not only to scale the business itself, building trust among companies and investors but to finally consolidate a market that still today remains a niche.

Is this investment a first in the world of Italian crowdfunding?

It certainly is and the proof is that equity crowdfunding is finally reaching the level of interest that has already been registered for other areas of the fintech. From this point of view, Intesa Sanpaolo Group, thanks to its dedicated investment fund Neva Finventures, is certainly the most active and supportive institutional player in the Italian fintech ecosystem, providing not only major investments but also the opportunity of integration with classic financial products. Intesa Sanpaolo’s approach to the investment in BacktoWork24, which is not just financial but industrial, is a further demonstration of this and will allow us to experiment new and more complete ways to support the growth of startups and SME’s.

How will this news affect the crowdfunding industry?

In a nutshell: building trust. Investing in startups and SME’s is not a game and cannot be a fashion of the period. What we propose to investors is a risky asset class that must be tackled with the necessary tools and with precise logic. From this point of view, our goal is to become a benchmark for the market in terms of educational activities offered to investors as well as giving transparency with regard to the information about the companies looking for funds, which will be rigorously selected. The continuous confrontation with the first Italian banking group will allow us to further improve our controls dedicated to the safeguard of investors and companies, strengthening more and more the confidence in equity crowdfunding and in the opportunities it is able to generate.

Before saying goodbye, give us an overview of the activity of Backtowork24 and your recent growth

We’re growing very fast! In the first half of 2019, we were the platform with the highest number of successful campaigns in Italy and we more than doubled the raise of the whole of 2018. Our growth rate, which is markedly above the market average, together with the investment availability to be dedicated to growth, lead us to expect a further acceleration of our development. Stay tuned!

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BacktoWork24: interview with Alberto Bassi

BacktoWork24 is the first platform in Italy promoting investment in startups and SMEs by private and professional investors. Via this Equity Crowdfunding portal, investors can find a wide variety of projects, from startups to SMEs and even Real Estate projects.

The BacktoWork24 platform has been active since 2015, “so far we have closed more than 170 investment transactions with over 22 million euros raised by our companies” says CEO Alberto Bassi who defines his company as “the benchmark for startups who want to grow through private funds and investments as well as for investors who want to diversify their portfolio “.

BacktoWork24 plans to enter foreign markets but not just yet: “there is still a lot to do in Italy!”. According to Bassi, in fact, the Italian Equity Crowdfunding market is growing fast but is not mature and developed yet. “We decided to focus on Equity Crowdfunding just to give a boost to the whole system and turn it into a mass market. Today it is as yet a market only for enthusiasts of innovation, startups and SMEs “.

Bassi aims to hit his national targets by 2020 and then look to foreign markets. To do so, he also decided to become part of Fintech District, “a community that can give a boost to the entire Italian Fintech market now known only to players in the sector and to fans of innovative financial services”

“It is not always easy to work in an integrated fashion in Italy. Thanks to Fintech District we also want to contribute to the development of the Italian fintech ecosystem. By bringing together several players, I am sure new opportunities for collaboration will arise that would be difficult to achieve on their own. Also in this way, we can create an ever larger and more interesting market “.

You can keep up with BacktoWork24 via its platform, where all the new projects for 2019 will be presented, and by taking part in BacktoWork24 meetings at Fintech District’s headquarters. “We often propose meetings between our startups, our SMEs and the network of interested investors – explains Bassi – This enables investors to meet entrepreneurs directly and ask them questions before investing through our platform “.

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