Equita to reach outside Italy for Fund II – exclusive

The private debt team at Italian investment bank Equita is preparing to launch a second fund this summer, with its first fund expected to be more than 90 percent invested by the end of February.

Equita has so far made nine investments from its debut vehicle, which closed on €100 million in late 2017, with a tenth deal due to close by the end of next month. According to the firm, the first fund is likely to deliver a final return net of costs of between 6.5 and 7.0 percent – at the upper end of an expected range of 5.0 to 7.0 percent.

The first fund’s investors were all institutional and Italian, including fund of funds Fondo Italiano d’Investimento and various other investors including banks, insurance companies and family offices as well as Equita itself. Fund II will also aim to attract non-Italian LPs and is in the process of hiring a placement agent to help it diversify its investor base.

Equita is currently registering its own management company with the Bank of Italy, a process which can take between five and seven months, and is waiting for this to happen before officially launching the second fund. It estimates launch sometime between July and September, but will hold conversations with current and possible new investors in the meantime to gauge the level of appetite. The firm is not yet commenting on the possible size of the new fund, other than that it’s expected to be bigger than the predecessor.

The return for the new fund is expected to be somewhat higher, as the first fund included a proportion of traditional senior loans. The successor will be more focused on higher-returning unitranche and subordinated bonds issued by Italian industrial small and mid-cap companies, as this is where the current opportunity is perceived to be. Ticket sizes for Equita’s deals, which are mostly private equity-backed, are typically around €10-15 million.

The Equita team is headed by Paolo Pendenza, who has more than 20 years’ experience at the likes of Goldman Sachs and BS Private Equity. He told PDI outsiders often have an unduly negative view of the Italian market:

“The market is new in Italy whereas, elsewhere in Europe, it has been around a long time. We can lend at high single-digit returns into conservatively leveraged structures. We leverage at less than four times, typically EURIBOR plus 800 with a zero floor and floating rate notes. It’s very stable and delivers safe long-term returns. But outside Italy, there is still limited knowledge of what the market is like.”