Following the recent Regulation for the bringing into force of the Law of 14/08/93 no. 344, Italian law now provides a legal framework for the institution of so-called "closed" investment funds, which from the beginning of 1995 have joined similar foreign "closed funds" which are already present in our domestic financial markets.
Such "closed" funds are structurally very similar to the already well-known (and increasingly more diffused) ordinary investment funds, from which they distinguish themselves neatly by the different aims they pursue. In fact, the closed fund is destined to receive savings that must be invested in the main (from 40% to 80%) in participation in the capital of companies which are not publicly listed and quoted on the Stock Exchange; such investment would normally be considered high risk, principally because of the difficulty in unfreezing the capital (lacking a market on which the quotas acquired could quickly be traded), and, to a lesser degree, because of the minor guarantees relating to publicity and transparency that assist the activity of companies admitted to the Stock Exchange.
The funds in question are defined "closed" in consideration of the fact that, unlike ordinary funds which follow the course of subscription, the assets invested cannot be varied. Such funds are, therefore, pre-determined in their amount and must be offered to the public with a single issue of quotas. The companies managing the funds, moreover, will operate as true financial companies, whose management profits will repay the subscribers' investment.
On the other hand, the subscribers should be more easily able to unfreeze their investment through the transfer of their quotas of participation which are dealt with on a specific market, subject to suitable regulation.
In consideration of the type of investment that the funds represent, and, in particular, their characteristic of risk investment, the legislation favours subscription by institutional investors (credit institutions, finance companies, etc.) with a minimum threshold of 100,000,000 Italian Lire, which is increased to 400,000,000 in the case of private investors.
Closed funds, which in themselves could be very interesting, particularly in an economy like Italy's, seem, however, to be chiefly aimed by the legislators at corporate bodies, rather than individual investors. On the other hand, the potential to attract investments from that direction is unfortunately limited by a tax treatment which is anything but favourable: the possession of quotas in closed funds, in fact, limits the deductibility of passive interest for the purposes of Italian corporate income tax (IRPEG). Given the contents of the outlined legislation and the characteristics of the Italian market, the prospects for the profitability of closed funds remain entrusted principally to the initiatives of the managing companies. The managers are, in fact, completely free to choose the sectors in which to make their investments. This choice, on the other hand, is particularly onerous considering the difficulties in identifying suitable businesses, outside the Stock Exchange, with sufficient margins of reliability and prospects of profits. Even though such "small" types of private undertakings are very diffused in the Italian market, there are two factors that seem to limit the choice: above all, the difficulty in obtaining access to documents and other information relating to companies through official channels (mainly the registries of commercial companies maintained at the courts, where the Memorandum and Articles of Association and the annual accounts and balance sheets of the company are filed); and secondly, the strict family control still maintained on many Italian businesses, even those of larger proportions, which seems to limit the scope for venture investment in unquoted companies.
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