[Co-Author: Antonio Rossi]

The outbreak of the COVID-19 emergency and the contextual economic crisis are triggering unprecedented challenges throughout all industry sectors. The asset management sector plays a key role in fostering the economic recovery of the country and canalising private savings through the Italian 'real economy' in the medium/long term in the post-COVID-19 phase. The legal framework is moving to facilitate this process, focussing on a more favourable tax regime and an extension of the potential eligible investors in asset management products.

While in the first phase of the COVID-19 pandemic most of Italian legislative economic measures were in the form of emergency financing for companies facing an unprecedented liquidity shock, subsequent provisions address the asset management sector.

Indeed, on the wave of the positive and stable responses of long-term individual savings plans ("PIRs") in 2017-2019, the pandemic context has pushed the Italian Government to amend the existing legal framework governing PIRs and introducing, in addition, the so called Alternative PIRs.

Generally, PIRs grant tax benefits (in terms of full exemption from income taxes and inheritance and gift tax) to investors in case of investment, with a holding period of at least 5 years, of at least 70% of the overall value of the PIR, in listed or unlisted Italy-based companies, in the context of the provision of the portfolio management service and through open-end UCIs, besides life insurance and capitalisation contracts. More specifically, at least 25% of the above mentioned 70% share must be invested in companies not listed in the Borsa Italiana FTSE MIB index or equivalent indexes of other regulated markets and at least an additional 5% must be invested in companies not listed in the Borsa Italiana FTSE MIB and FTSE Mid Cap indexes or equivalent indexes of other regulated markets. The need for the possibility to set up PIRs through closed-end investment vehicles has been discussed since their introduction as, in light of their typical investment strategy and regulatory requirements, such vehicles can represent a concrete support instrument for small and medium enterprises ("SMEs") and be particularly suitable for pursuing a medium and long term investment target.

In this direction, Law Decree No. 34 of 19 May 2020 (the so-called "Rilancio Decree") introduced alternative PIRs (the "Alternative PIRs") to channel resources toward Italy-based unlisted companies. Alternative PIRs characterise for a wider spectrum of qualified investments, including also loans and receivables, a higher investment concentration threshold (i.e. 20% instead of 10% for PIRs), higher investable amount thresholds (i.e. EUR 150,000 per year and EUR 1,500,000 in total, instead of EUR 30,000 and EUR 150,000 respectively for PIRs) and can be set up generally through AIFs (i.e. no longer only through open-end UCIs and life insurance and capitalisation contracts).

These features, together with the tax benefit allowing for a full exemption from income taxation (provided that the 5-year minimum holding period is met), make Alternative PIRs suitable for high net worth individuals who can be keen to invest in riskier and more complex instruments and in a long term scenario due to the illiquidity of the relevant investments (e.g. shares of unlisted SMEs, loans and receivables). Furthermore, the increased investment thresholds make Alternative PIRs also a palatable wealth planning tool, considering that they are also exempt from inheritance tax.

Among suitable closed-end vehicles, European Long-Term Investment Funds pursuant to Regulation (EU) No. 2015/760 ("ELTIFs") seem to be the structure that fits the requirements set out for Alternative PIRs the most and may thus benefit from the tax treatment applicable to the latter. Indeed, various ELTIFs Alternative PIR compliant are already on the launch pad.

ELTIFs are the ideal tool to promote investments in SMEs for a number of reasons: they are closed-end funds that can potentially be sold also to retail investors; the nature of closed-end funds guarantees ELTIFs the time necessary to invest and liquidate investments over a period of several years, and give the manager flexibility to launch a fund focused on equity, debt or other asset classes.

When retail investors are targeted by ELTIFs specific safeguards are to be put in place, including the provision of investment advice. While such requirements may make the sale process more complex, they may enhance the trust of the retail audience in this type of products.

We also note that on 4 June 2020, the Italian Ministry of Economy and Finance launched a public consultation asking for the stakeholders' views on the envisaged amendment of the eligibility criteria investors have to meet for subscribing Italian reserved AIFs. The express aim of these changes (lowering the thresholds for the subscription of Italian reserved AIFs by retail investors, but introducing specific safeguards, e.g. mandatory investment advice) is once again the economic recovery of the country.

More specifically:

• where the AIF shares/units are subscribed in the context of the placing of financial instruments service (thus upon a mere appropriateness assessment) the current subscription amount of 500,000 euro has been maintained;
• where instead the AIF shares/units are subscribed in the context of the provision of the investment advice service (thus upon a suitability assessment) the minimum subscription amount has been reduced to 100,000 euro, but with a concentration limit of 10% of the client's financial portfolio;
• lastly, where the AIF shares/units are subscribed by authorised entities in the context of the provision of the portfolio management service, on behalf of non-professional investors, only the subscription limit of 100,000 euros is prescribed. This is due to the fact that the management mandate granted by the client implies a degree of discretion and liability for the manager while assessing the investments to be made on behalf of the client.

The above measures, long awaited by the market, in addition to pursuing the public interest objectives described, may offer market players new business opportunities in the Italian market. Time will tell whether the latter will take full advantage of these new opportunities.

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