AP Private | November December 2022
The everlasting desire of Italian private clients is to maintain the value of their wealth over time, driven by their willingness to take risks, the ability to diversify their investments, together with a remarkable amount of real-estate assets.
The vast majority of the wealth of Italian private clients has its roots in a family business, either active or sold. In fact, real estate and companies are two common elements to Italian private clients.
Thus, of the many banks dedicated to the private segment, those operating in both sectors can better meet to expectations of affluent clients.
Real estate and companies are very different sectors – in appearance safe and solid (especially according to Italians), they can also be quite risky and weak.
Italian entrepreneurs, in particular the owners of small and medium-sized businesses, tend to envisage the activity of their business as a financial investment rather than as a real-estate investment.
For this reason, against today’s very complex financial backdrop, private clients who are also entrepreneurs tend to be attracted, more than others, by illiquid investments in unlisted businesses or real-estate operations through high-visibility club deals.
Currently, private markets, in particular those focusing on high-growth-potential businesses (typically startups) or on companies to be relaunched through cross-border operations, represent a very attractive option for affluent clients.
When it comes to illiquid investing, there are three key issues both in case of real estate operations and investments in private equity or private debts of unlisted companies.
Firstly, the presence within the bank/financial mediator of the right level of expertise in managing illiquid investments. It is often best to rely upon established businesses with proven experience in the field.
In case of agreement with a third party, operations should be tailored to clients in order to avoid appearing as simple mediators with no power to provide any added value.
On the other hand, internal expertise should be supported by adequate evaluations in term of risk management.
Secondly, the share of assets to be invested – we are well aware that in the USA and in the UK, HNWIs and UHNWIs go as far as 30%.
On the other hand, in Italy, culture and the level of risk propensity mean that 5-10% of assets in the case of private clients and 10-15% of assets in the case of HNWIs would be regarded by some as excessive.
Thirdly, the time horizon required by illiquid investments, on average no less than 10 years. Subscribers of illiquid investments should be aware that it is necessary to let the invested assets operate; otherwise, the result would be an unfinished job.
Today, all private banks offer illiquid investments in unlisted companies or high-visibility real-estate operations. Therefore, monitoring the evolution of the market in Italy will be the key to understand its future.