As part of the implementation of Directive 2011/61 / EU on alternative investment fund managers (AIFMD), a new regulated investment vehicle, called “società di investimento a capital fisso”, Or SICAF, was introduced in Italy.
Under the AIFMD and Legislative Decree 58/1998 (known as the Unified Financial Law or UFA), a SICAF is an alternative investment fund with fixed capital, i.e. a scheme established in as a joint-stock company with fixed capital and registered head office in Italy, having as its sole commercial object the placement of assets obtained through the issue of shares (or other equity instruments), between a certain number of investors, managed as a whole in the interest of its investors and independently of them. It invests primarily in real estate on the basis of a predetermined investment policy.
This article gives a brief overview of the main characteristics of SICAFs, focusing on those that invest primarily in real estate, and their marketing procedures. It should be noted that the law in this area is currently undergoing major changes due to the ongoing implementation of the AIFMD, and new regulations are expected shortly. Thus, the following is an overview of the Italian laws and regulations that are expected to come into force in the coming months.
Main characteristics of Italian real estate SICAFs
The constitution of a SICAF must be authorized by the Bank of Italy.
A SICAF whose shares can only be offered to professional investors and qualified investors (including, among others, stockbrokers and foreign persons authorized under the regulations of their home country) is qualified as “Reserved”, as opposed to the “retail” SICAF, whose shares can be offered to any investor and can also be listed on a regulated market.
The SICAF can manage its assets itself or appoint an external manager. Other entities involved in the operations of a SICAF include, inter alia, a custodian bank, which is required to hold liquidity and financial assets of the SICAF, in order to protect the rights and property of investors, a statutory auditor, accounts to certify its accounts and any expert independent body that may be appointed to provide real estate appraisals.
SICAF above and below the threshold
SICAFs can be described as either above the threshold or below the threshold.
Under the UFA, the SICAFs below the threshold are the reserved SICAFs:
- whose assets under management do not exceed € 100 million; Where
- whose assets under management do not exceed 500 million euros, provided that they are without leverage and that the investor’s redemption right cannot be exercised for a period of at least five years from the date of initial investment.
SICAFs reserved below the threshold are subject to slightly less onerous regulatory requirements than those which apply to SICAFs above the threshold.
The authorization procedure
SICAFs are approved by the Bank of Italy, in consultation with the Consob. The authorization process must generally be completed within 90 days, although the period may be suspended when additional documents are requested. The following authorization conditions must be met:
- the entity must be a corporation;
- it must have a minimum initial share capital of at least 1 million euros (500,000 euros for reserved SICAFs, and 50,000 euros for SICAFs below the threshold);
- its registered office and registered office must be in Italy;
- its only commercial object must be the collective investment of the assets obtained through the offering of its shares and other equity instruments;
- its founding shareholders and the management team must meet the integrity requirements established by the Ministry of Finance, in consultation with the Bank of Italy and Consob.
The authorization request must include details of the activities envisaged by the SICAF, its development projects, its objectives and a report describing its administrative structure.
Reserved SICAFs are subject to a less onerous valuation procedure than that which applies to retail SICAFs. Once the authorization has been granted, the SICAF must start its activities within one year.
SICAFs must be managed in accordance with a predetermined investment policy and, when investing primarily in real estate, must generally comply with the following investment limits:
- They must invest an amount at least equal to 2/3 of their total value (which may in certain circumstances be reduced to 51%) in real estate, real rights to real estate assets, participations in real estate companies and others. Estate AIFs (these are called “qualifying assets”).
- They may invest the remaining third of their total value in assets other than eligible assets (for example, listed or unlisted financial instruments, in compliance with applicable general prohibitions and investment limits provided for by law).
- They can invest in claims relating to their own assets, which means they can lend money to third parties.
- They cannot carry out any direct construction activity.
Risk concentration limits and leverage
Under the Bank of Italy’s new draft regulation on collective asset management, SICAFs must comply with certain risk concentration limits. Reserved SICAFs may derogate from these limits, but even in these cases a minimum level of de facto risk diversification (based on the characteristics of the assets in the portfolio) must be ensured.
In terms of leverage, the Regulation provides that retail SICAFs must limit the leverage to a ratio between total indebtedness and NAV not exceeding two, while no specific limit to the use the leverage effect is not provided for reserved SICAFs. However, if the reserved SICAF systematically uses the leverage effect (i.e. the ratio between total indebtedness and NAV is greater than three), the Bank of Italy will intervene to assess the adequacy of the internal structure of the SICAF and risk management, as well as the potential leverage impact on its financial stability.
Shares in a SICAF
The purchase of shares in a SICAF is subject to the supervision of the Bank of Italy. There must be multiple investors but, under the Regulations, this requirement is met even when there is only one unitholder, provided that his investment is in the best interests of a plurality of investors. investors (for example, in the case of a fund of funds), or that the marketing of SICAF shares was aimed at a potential plurality of investors.
When a reserved SICAF wishes to market its shares, a notification must be sent by the intermediary to the Consob, accompanied by a cover letter, describing the activities of the SICAF; a copy of its statutes; and other information, including a description of how the SICAF intends to avoid marketing its shares to retail investors. Marketing can only start upon receipt of Consob’s approval (to be issued within 20 working days).
Similar restrictions apply to the marketing of the shares of a retail SICAF. They must also inform the Consob and provide information on their activities. Once again, marketing can only begin upon receipt of the Consob’s communication (to be issued within 10 working days – the shorter duration reflects the cheapest authorization procedure).
Retail SICAFs wishing to trade their shares on a regulated market must issue a prospectus. This is also subject to the approval of the Consob. Admission to trading is subject to authorization by the Italian Stock Exchange (Borsa Italiana) and is regulated by the Stock Exchange.