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CDP catalyzes Italy’s long-term growth through investment and addressing market failures

Article - June 7, 2016

Italy’s Cassa Depositi e Prestiti (CDP), the national promotional bank with a €400 billion budget, is on a mission to jump-start the Italian economy. 


Essentially the country’s sovereign wealth fund, the CDP assists companies of all sizes—particularly corporations and companies involved in real estate and infrastructure—with venture capital funds and investing as a long-term partner.

Chaired by former Goldman Sachs investment banker Claudio Costamagna, the CDP is currently developing a Turnaround Fund to help companies that are still solid but are facing financial issues by intervening in their control and relaunching them with new management.

The bank also provides support to Italy’s public administration sector, financing investments and promoting the leveraging of regional real estate assets, using postal savings deposits as the main source of funds, and is the leading Italian player in social housing.

In an interview with United World, Mr Costamagna explains CDP’s pivotal role in unleashing the country’s full potential and why Italy presents such incredible growth opportunities.


United World: What is your personal perspective on Italy’s reform agenda? Is it going in the right direction?

Claudio Costamagna: Yes, it is definitely going in the right direction. It is a huge reform agenda that will have a huge impact, for instance on employment, even if some other people underestimate it. In the 40 years I have been in this business I have never seen so many investors coming to Italy. We are witnessing unprecedented interest and investments in real estate and in infrastructure.

Still, we have two main issues that need to be tackled in order to shape a better business environment. First of all, we need a radical reform of the judiciary system. There are many investors who would love to come to Italy but they face uncertainties on taxes, as well as on civil and commercial settlements. There is a reform, which is part of the reform agenda, that is already producing positive effects, but I believe we need to go deeper than that. Secondly, we have issues at the European level, such as high debts, demographic and immigration issues, and also economic policies in the past haven’t facilitated the economic recovery during the period of deep crisis. The Ministry of Economy and Finance, however, is working well and has implemented interesting initiatives.

The focus is now on Atlante, which is a fund with the objective of re-activating the banking system. It is a private initiative that includes most of the large banks, insurance companies and banking foundations of our country, as well as CDP. We have raised €5 billion and will use it to recapitalize two banks, namely Banca Popolare di Vicenza and Veneto Bank. These funds will be used to increase their capital and the rest, which represents 50% of the total amount, will be used to get a series of special purpose vehicles for banks to sell their non-performing loans. Another important element of the plan is the promise made by the government to issue a decree to shorten the judicial period that allows the participants of the project to recover collaterals, which in Italy are mostly real estate assets.


CDP’s mandate has been evolving throughout the years. What is your view of the mission of CDP? Where would you like to take it?

Until 2003, CDP was a division of the Treasury, to which it belonged 100%. For 150 years, CDP did two things: gather the postal savings, and invest them to finance regional and municipal authorities. In 2003, the then Minister of Economy and Finance, Giulio Tremonti, decided to privatize a minority share of it because of the high public deficit. 20% of it was transferred to a group of private banking foundations and 80% was kept by the Treasury. By doing that, the government deconsolidated the balance sheet of CDP out of the state account. Consequently, the government used CDP to sell stakes of state-owned companies that were privatized in these years.

For instance, we own 26% of ENI, which is the largest company in Italy, while the Treasury owns 4% of it. Something similar happens with Snam and Terna, the gas and electricity network companies, of which we both own 30% of each; Fincantieri, the ship building company—probably one of the largest in the world—and SACE, the export credit firm.

I like to refer to ourselves as a ‘strange animal’, a hybrid institution. We are a national promotional bank, as we still manage the postal savings and we still finance local authorities and regions; but we are also a big holding company, and throughout the years, we have also developed a number of initiatives in the private-equity world. Our mission now is to make the economy grow and to maintain a profitable balance sheet. And we are actually very profitable. Even with the low interest rates given last year, we closed 2015 with a net profit of €900 million. We have a €400 billion balance sheet, so a significant amount of capital is available to deploy.

We identified four pillars: one is related to our historical business by which we provide public authorities with funding. We also try to develop innovative solutions for them. For example, by centralizing public services that were being provided by multiple smaller firms under one larger and more efficient company. The second pillar is infrastructure, the third is corporations, and the fourth is real estate.

Starting from the latter, we have a portfolio of approximately €3.5 billion. Our duty is to manage it and make it more profitable, because it was quite abandoned. For example, there are eight buildings in Venice that are empty. We need to find the way to redevelop them and then put them on the market. Apart from that, we can work with different state assets because we are capable of grouping them in a way that makes them more attractive for investors. By doing so we gain important profits. Another interesting example is our idea to work with prisons. Just consider Milan and Rome, for instance. The main prison in Milan is in San Vittore, which is located in the most residential area of Milan. The prison in Rome is in Regina Coeli, which is a medieval palace on Lungotevere. If we can just build two new prisons on the outskirts of Milan and Rome, make them very efficient, very modern and then free up San Vittore and Regina Coeli to redevelop them, it will be an extremely profitable project. We can even do similar projects with social housing.

Corporations receive the greatest share of our investment. We think about enterprises taking into account the life cycle of a company. Italy is a country where there are many start-ups, because people usually find it easy to start an enterprise with friends. However, most of them fail in later stages for lack of funding. That is the moment for us to intervene with our capital. Then, when companies look at internationalization, we have SACE—the export-credit company—and SIMEST, our subsidiary company that provides technical and private equity for companies that want to invest abroad. We are pushing SACE to do much more business with medium and small-sized companies, because they are the backbone of the Italian economy.

Borsa Italiana’s capitalization is 30% of GDP. In France the stock market cap is 95% of GDP; in the UK it’s 130%; in Germany it’s 85%; and in the US it’s 150%. Moreover, 80% of that market capitalization in Italy is made up of banks, insurances, utilities and ENI. If we manage to double the number of listed companies, the impact on GDP will be considerable. For example, by going from 300 companies to 600, the impact on GDP would be more than 1%. Italy has the second largest manufacturing industry in Europe, more important than France and the UK. Where do these companies take their funding from? These enterprises fund themselves with loans from the banks and families. Every enterprise gets to the point where it can grow dramatically or get out of business. Companies that have the ambition and skills to really grow need to open up the capital.

We are now launching a new fund with the Fondo Strategico Italiano that will invest in minority stakes of family-owned companies, with the objective of taking them to the market as soon as possible. That is going to be a €1.5-2 billion fund, with the participation of several international investors in it, such as Kuwaitis, Qataris, and some other financial institutions including CDP.

CDP intervenes when there is a market failure. We are in the process of launching a new instrument, namely the Turnaround Fund, which is a distress fund that doesn’t exist in the market. While there are a lot of international distress funds, they find it very difficult to do business and have problems with judicial systems. On the contrary, we have already raised close to €1 billion to intervene in companies that are still solid but that are facing financial issues. We will take control of them, place a new management and relaunch them.

We are long-term players and we work to help the market expand by itself. We work to create markets and enable players to grow.


What are the normative constraints for CDP’s interventions?

We cannot invest in money-losing companies, for instance. Our most compelling interest is to raise capital because we are in Europe, where venture capital remains at an infant stage of development. Even if France, Germany and the UK can get more capital than we do, they cannot achieve the levels of the United States. France, however, has done a great job. Actually, the job was done by Caisse des Dépôts et Consignations, which is our French equivalent. In fact, we are looking at what they have done and trying to replicate it.

We are attracting financial investors, most of which are Anglo-Saxon funds that cannot invest directly in other funds. Then, we give them the possibility of co-investing in the real estate sector, for instance. We also invest with funds from Qatar, Kuwait, and Azerbaijan, and the big pension funds.

We have a good pipeline, that’s the reason why everybody wants to do business with us.


If we want to connect two of the four pillars that you have just mentioned, for example, the enterprises and the infrastructure, what is the role of CDP in terms of investing in innovation and, specifically, in terms of broadband infrastructure?

We are currently building broadband infrastructure. Banks are normally the largest financers of infrastructure projects. We want to innovate by bringing the market to the infrastructure industry. By this, I mean that we want to increase the securitization and the use the bond market.


What would you say are the main reasons why American investors should look at Italy as their next destination?

The reason why we are back on the map of global investors is Prime Minister Matteo Renzi, who has presented a new, young, and innovative face of Italy to the world. A second factor is what I like to refer to as ‘default reason’. Americans are looking for investment opportunities abroad and they find that emerging markets are out of fashion. Many countries in Europe are saturated, such as the United Kingdom. In Germany, everything is done by the Germans. France is unattractive for foreigners and Spain is a small economy. What do they have they left? Italy! This, combined with Renzi, is the reason why everybody wants to invest in Italy now.

Our main objective is to push companies towards the stock market. The old concept of passing the company from generation to generation is going to die. That is why, either the company becomes big enough, where you can ‘managerialize’ it, where the family understands that they need to become a shareholder and not an owner and open up the capital, or it fails. Only then we will be able to get to where we should be.

Another great difference between us, France, Germany and the UK is that they have more global companies. For example, the UK has hundreds of global companies while we have only very few. In a global economy our platform does not work, so we either multiply the number of our global companies in the next 10-20 years, or we won’t be able to keep up with global competition.


You have a clear vision of your mandate at CDP and what you need in order to achieve your goals. When it comes to Italy, what is your vision of the future of the country?

We talked about many important industries, but we have not discussed the food business. Italy has the greatest potential in the agri-food business. We currently rank 10th or 11th, where we should clearly be the number 1. Similarly, we need to develop tourism. The last statistics say that in 2014, there were 10 million Chinese visitors in Paris, while in Rome there were 250,000. Then, the most important aspect we need to develop is a strong domestic incoming tour operator, which is key to bringing people. Another aspect we need to develop is hotels. That was part of the reason why my predecessors invested in Rocco Forte Hotels, with the aim of pushing investments in Italian hotels. For instance, Pompeii does not have a local hotel; tourists must travel from Naples.

I lived for 20 years in London, and when I came back to Italy I realized what a beautiful country we have. I was a little bit shaky at first, but ever since I came back I haven’t had a single day where I regretted having come back. Italy is a country that has, by far, the greatest potential of the European countries, with the problem that it has been badly managed. Italy can grow amazingly because it has specific assets that are unique, not only in Europe but in the whole world.