Opening Italian alternative funds to retail clients’ investments

Investment regulations are constantly evolving, generating innovation and new solutions for investors. We talked about it with Giovanni Carotenuto from Carotenuto Studio Legale, an independent law firm with an international vocation.

On 15th March 2022, the Decree of the Minister of Economy and Finance no. 19 of 13th January 2022 (the “Decree”) was published in the Official Gazette, which amending the Ministerial Decree no. 30 of 5th March 2015 in order to redefine the conditions for participation in Italian alternative investment funds (“AIFs”) by retail clients, holding medium/large assets. The Decree will come into force on 30 March 2022.

What is an undertaking in a collective investment scheme and which are its main features?                             

Pursuant to Article 1, paragraph 1, sub-paragraph k), of the Legislative Decree no. 58 of 24th February 1998 (the Consolidated Law on Finance; “CFA”) an undertaking in a collective investment scheme (“UCI”) is a “body set up to provide the service of collective asset management, whose capital is obtained from multiple investors through the issue and offer of units or shares, managed upstream in the investors’ interests and independently by the same, and also invested in financial instruments, credit, including credit backed, in favour of subjects other than consumers, by the UCI’s capital, equity or other fixed or non-fixed assets, on the basis of a predetermined investment policy”.

In brief short, UCI’s purpose is to allow investments of sums of money in through financial instruments (e.g., the UCI’s units) of sums of money collected from professional and retail investors on the basis of a predetermined policy, which includes a description of the level of risk related to such investments.

UCIs can take the form either of mutual funds or investment companies (namely, investment companies with a variable capital (i.e., SICAVs) or investment companies with a fixed capital (i.e., SICAFs)). The investment in the latter amounting amounts  to becoming a shareholder of the company in question.

On the contrary, a mutual fund requires the appointment of an asset management company whose assets are distinct and separated from those of the mutual fund managed. As a result, investors receive a fund’s units in exchange for the capital invested therein.

As part of the wider family of mutual funds, AIFs are specialised alternative funds, professionally managed with the aim of achieving absolute performance, independent of market trends.

Which are the main novelties introduced by the Decree?

As a general remark consideration, the Decree has changed the thresholds for making investments in AIFs. Indeed, beforehand, only the following subjects were entitled to purchase in AIFs’ units:

  1. professional investors (i.e. clients who possess the necessary experience and expertise to make their own informed investment decisions and properly assess the risks they take, such as banks, investment firms, other authorised or regulated financial institutions, insurance companies, collective investment schemes and related management companies, pension funds and management companies, large companies that have at least two of the following requirements: their total balance sheet is equal at least to  € 20,000.000; a their net turnover is equal at least to € 40,000.000 and owns funds of at least € 2,000.000);
  2. retail investors who invest a total amount of not less than € 500,000.00;
  3. asset management company’s Board members and employees without any entry threshold.

From the entry into force of the Decree, AIFs can be subscribed by:

  1. retail investors who, within the ambit of an investment advisory service, purchase AIFs’ units for an initial amount not lower than € 100,000.00, provided however that the total amount of such investment does not exceed 10% of their financial portfolio and takes into account that the initial minimum subscription cannot be split.
  2. individual portfolio managers purchasing AIF’s units on behalf of retail clients for an initial amount not lower than € 100,000.00.

As a result, which opportunities for investemnt in AIFs are now available for retail clients?

AIFs are investment funds characterised by: the absence of a link to a particular benchmark, the presence of a fairly high potential return and, consequently, a medium-high risk profile. Moreover, AIFs have a low correlation with the various equity and bond markets.

As a consequence of the entry into force of the Decree, retail investors with medium/large assets are hence being offered the possibility of gaining returns on their investments even when the market trend is in a negative phase, yet bearing at the same time the related risks.

In light of the foregoing, access to these forms of alternative investments to a wider category of potential investors in medium/long term illiquid assets and unlisted companies, may result in increasing portfolios diversification, achieving appreciable returns, and at the same time, providing alternative sources of financing Italian unlisted companies (particularly, SMEs) and fostering Italy’s economic recovery.

The Decree has also established that intermediaries purchasing AIFs’ units on behalf of retail clients and those advising the latter to subscribe to such units must know the financial instruments purchased or recommended, as well as assess their compatibility with their (actual or potential) clients’ best interest. In addition, the latter must provide the above intermediaries with accurate information on concerning their financial portfolio and other investments in AIFs.

How will these novelties impact on an innovative and agile reality such as the Fintechs in our community?

In this scenario, Fintech companies may benefit from the opening of retail investments, particularly in the venture capital and private equity sectors. Given the constant need for higher investments in the real economy, the novelties introduced by the Decree represent a potential boost in the alternative funds’ market, increasing, in turn, the ability to raise capital for the development of start-ups/SME’s with greater development potentials, amongst which we find Fintech companies.

The future is vertical, says Solarisbank

Vertical banking means offering a highly personalized banking experience to a very specific kind of customer. Where the usual approach is to enrich an existing banking product with technology, vertical banking does the opposite. The goal is to create a product that meets the unique needs of a well-defined audience.

Is building apps for the mass market and seeking growth at all costs still the key to success? Or is vertical banking – i.e. building a high-quality, but very focused product – the key?

If neo-banks are aiming to build customer loyalty and retention, they need to focus on creating innovative financial products that improve their customers’ lives through tailor-made solutions that traditional players are unable to offer.

How NEUROMARKETING can propel a FINTECH business

Enrico Morandi, founder of MIND:IN, spoke about the power of neuromarketing to the
Fintech District community during a lively and populated mentorship session. We asked him
to share his knowledge and experience also in an interview dedicated to the fintech sector.
Enjoy reading it!

Neuromarketing: can you give us a definition to convince us that it is not a marketing
invention?

Neuromarketing is a discipline that makes it possible to measure the effectiveness of
measuring communication
and marketing possible through the direct measurement of
emotions and basic processes linked to purchasing decisions.
It stems from the convergence of the most recent neuroscientific and brain image research,
traditional marketing and consumer psychology, and therefore operates on a solid basis.

What advantages does this discipline offer? What tools/opportunities does it offer?

It aims to assess what happens in people’s brains in response to marketing stimuli related to
products, brands or advertising. In fact, the techniques on which neuromarketing research is
based make it possible to verify with greater precision the variation of the emotional
condition determined by marketing stimuli thanks to the analysis of psychophysiological
indicators correlated with emotional states, assuming that this can help companies to
determine a greater involvement of their target audience.

How can it be exploited by an innovative startup?

It can be the basis of any marketing and communication choice. The design of a website can
integrate user experience processes with neuromarketing measurements. Images and texts
are undoubtedly more effective when verified with these techniques. Not to mention the
entire Customer Experience, which becomes more relevant in terms of channels and modes
of engagement. It is precisely an innovative startup that should forget the usual marketing
methods and start from its customers and design and reason around them – or rather, their
brains.

What are the first steps in approaching neuromarketing?

There are many courses and books. To get a general idea of the techniques and
specificities, one book above all needs mentioning: “Neuromarketing, communication and
consumer behaviour”
by Vincenzo Russo.

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How to be a leader for growth, according to Judith Eberl

Lots of articles and guides for learning to be a leader, in life and at work appear. There is probably no one way, no one answer for everyone. In order to get what we need for those who are leading a startup in a global context like the current one, we interviewed Judith Eberl, Managing Director of JuPantaRhei, who in the coming weeks will hold a mentorship session on the same topic, reserved to the fintech of our community.

What are the essential soft skills to lead a business?

Leading a business is tightly connected to leading yourself and leading people. As a business leader you need to have a vision, think strategically, evaluate risks and drive performance. But you cannot grow the business if you are not able to manage yourself and that starts with self-awareness which means having a deep understanding of your own feelings and emotions, of your own weaknesses and strengths and of your own values and capabilities. But a business leader needs also be able to lead people, to motivate them to work towards the organisation’s vision and to grow and develop them.

Three things a leader should never do

  1. Leaders often times say very quickly when something does not go the right way. But when it comes to expressing recognition and gratitude, they forget to do so. Leaders should never forget to give praise, also publicly, to someone that has made a contribution to achieving a certain goal. If a leader does not show gratitude, people feel forgotten, ignored, pushed to the side, and they resent it.
  2. A leader should remember that emotions are contagious, so are negative emotions. When someone gets angry, he/she is usually out of control. That’s when a leader should not make destroying or cutting remarks or act in a negative way. Behaving like this, people will start avoiding the leader and are less willing to support and work alongside.
  3. Leaders should not jump to conclusions too quickly. We often judge others or grade what they say very quickly, even when they try to help us. When leaders want to impose their standards, people get hesitant and defensive. A leader should therefore be open and seek for different perspectives and diversity in their teams. A leader should actively listen, trying to understand the perspectives of others and be open to different approaches.

How can you foster the growth of your team: examples/practical actions?

When approaching our teams, we have to remember that each team member comes with his/her own background, experience, capabilities, skills and competencies. Furthermore, each individual is driven by different motivational factors. A good leader has to address each team member, having clarity whether the person has the necessary competencies and the motivation to perform the specific task/activity and adapt its leadership style.
When we have team members that have the necessary skills and a high motivation, leaders should focus on coaching them. Coaching really aims at unlocking a person’s potential to maximise their own performance. It is helping them to find their way to reach the objective, based on their natural talent and strengths. Coaching is a two-way-communication, based on trust and mutual respect and the role of the leader coach is to create the right context for each individual to grow and succeed. Listening and questioning are some of the key elements of coaching.

What techniques can help to better identify strengths and areas of development for those leading a business?

Self-awareness is the starting point and it means being conscious of the effect that our feelings and emotions have on ourselves and on others. We cannot change our emotions, but we can decide how to go about them. But it is also crucial for a leader to understand how others see them. This is where open and continuous feedback comes in. In organisations where there is a feedback culture, direct communication and open conversations are happening on an on-going basis. Business leaders should seek for feedback being open-minded, curious, self-reflective, willing to change and adapt.

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Fintech Nights #1: an evening of AI with the FD

Knowledge, Experience and Networking are the three pillars on which the “Fintech Nights” are based. The first edition of this new format launched by the Fintech District on 7th May was dedicated to artificial intelligence, a theme which is intensely connected with the development of the fintech sector but not only.

Since this is an exclusive initiative, reserved for our partners and those who bought tickets for the entrance, we will not retell everything but will let you peek at a few moments of Fintech Nights #1 through the keyhole. The evening began with an overview of how this technology is impacting many sectors, including the health sector with consequences that up to today we can only guess, which excite and, at the same time, frighten us.

Alessandro Longoni talked about it and remembering the ups and downs actually recorded in the history of artificial intelligence from 1952 when IBM unveiled its first commercially available scientific computer until 2016 when Google DeepMind’s ALPHAGO defeated Lee Sedol on a game of GO. Compared to previous years, the situation today is different. AI can continue to flourish. Indeed, it can do better thanks to the cheap processing power that allows you to process more data, thanks to the growing role of technologists in the development of AI and also to the large investments big tech are doing on it.

Let us take a look at who in practice develops and uses artificial intelligence. In Europe today there are 2,830 companies declaring to be AI Startups. With Antonio la Mura we have gone through the ranking of the countries with the highest number of AI startups: after the USA we find China and Israel. The first European country is the UK and Italy is in 19th position (Source: Artificial Intelligence – A strategy for European startups | Roland Berger, 2018).

In Europe, however, there is no lack of initiatives to support AI, France and Germany are among the most active countries and the European Commission is also working to promote the spread of AI. Thanks to the collaborations that Fintech District has established with international innovation hubs, at the first of our Fintech Nights we were able to tell about the startups in other countries offering interesting AI-based businesses including Feedzai (by Portugal Fintech), Lingua Custodia (by LHoFT), Yields (by B-Hive), 2021Tec.AI (by Copenhagen Fintech) and e-bot ( by Techquartier).

In the Fintech District community there are many startups that use AI. Our community manager Stefania Barbato has identified the 3 emerging trends investigating among the 111 startups – Robo-advisors, Alternative data and Cybersecurity – and has explained them through concrete examples, respectively Moneyfarm, FinScience and Talos.

Obviously, the following wave of AI and automation will transform financial services over the next few years. Mico Curatolo explained that companies using AI to improve business processes will reap clear competitive benefits. There are hundreds of opportunities that could be enabled by the deployment and development of AI in financial institutions.

So, how can I get hold of them and not be left behind? ING, CITI and AXA have done so in three different sectors by opening up and focusing on applied innovation, with excellent results. This can also happen in Italy with our support and it is not only a promise because we have the evidence: the Data Driven Competition.

The evening continued with the evocative and inspirational intervention of Samsung. Antonio Bosio (Product & Solutions Director for Samsung) excited the audience with a video showing how artificial intelligence can be a key factor for digital inclusion. Then he told about its impact on three different areas: languages, services and devices

Raffaele de Lucia (Manager of Watson and Cloud Acceleration Team IBM) introduced “IBM Watson, between false myths and great potential”. As the volume of data, digital transformation, and the pace of technological change accelerates, the ability of organizations and professionals to keep up and capitalize on the opportunities is becoming more challenging” he explained. “AI provides an opportunity to help professionals close this gap and harness the full potential of data by creating new tools to improve their work and outcome”. The use of Al is increasing but there are some difficult challenges concerning regulatory constraints and lack of technological skills to face.

Alessandro Vitale, Member of the Board of Coordination of the Task Force for AI in the PA and CEO of Conversate, explained his point of view. Vitale argues that 2019 is the year for large companies and banks to invest in AI in order to have a clear advantage over competitors in the coming years. AI offers new services and new ways of interacting with customers and initiates a structural change for banks. Those who use it can have many advantages but must face two non-trivial challenges, one organizational one, for setting up the collaboration man-algorithm, and one of the processes, because AI requires rapidity

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The evening ended with 5 startups from the community talking about how they actually use AI and how they aim to use it with future partners. We invite you to discover them on our community page and leave them to speak. In the following video pills, they share with us their thoughts on the future of AI

Swascan

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Axyon AI

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Wavenure

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Modefinance

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Cardo AI

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After so many words, here is a roundup of images of the evening.

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