Anna Gervasoni

Research on private debt has examined funds, contracts and returns; much less is known about the firms that receive direct-lending finance. This paper moves the analysis to the borrower side through a population-level study of Italian private debt transactions. It combines more than ten million Italian firm-year observations for 2013-2023 with proprietary deal data from the Italian Association of Private Equity, Venture Capital and Private Debt (AIFI), and estimates logit selection models to identify the characteristics associated with first-time private debt funding. The estimates reveal a sharply bounded borrower profile. Private debt investors favour larger, moderately profitable and moderately riskier firms with intermediate asset tangibility, while avoiding firms that are persistently loss-making, wholly intangible, highly collateralised or excessively risky. The evidence is consistent with private debt operating not as a simple substitute for bank lending but as a specialised contracting arrangement for firms whose risks are non-standard yet contractible: too opaque, growth-oriented or insufficiently collateralised for the lowest-cost bank segment, but sufficiently large and cash-generative to bear the fixed costs of due diligence, covenant design and monitoring.

The internationalisation of the Portfolio Company is a key strategy used by Private Equity investors to create value and produce returns. In recent years, the focus onthe strategies for value-creation through operational improvement has become essential to achieve the exponential growth required to the Portfolio Company,given thelow multiples and themarket riskof leverage. In this paper, we define the key types of contribution that a Private Equity investor can provide in order to support the internationalisation process and their effects on the Portfolio Company performance. The research is based on a survey administered to 47 Private Equity fundmanagers, which covers156 dealsinvolving Italian companies. The results offer insight into the contribution tothe corporate governance, strategyand management that Private Equity provides in addition to the monetary support. The findings show that the non-financial support given toPortfolio Companies has a positive impact on the performance and that the most impactful contribution the Private Equity can give is the support to the relational network when the company strategy involves a Foreign Direct Investment.

Recently, private equity, venture capital and private debt have received prominent backing from the EU Commission in its project to build Capital Markets Union. The fundamental role played by the financial industry in supporting SMEs, which can benefit from patient investment and active ownership, could be obstructed or encouraged by regulatory, tax and competition policies. This paper briefly describes the positive role of the industry players in developing successful and sustainable companies and hence contributing to growth and job creation. It also identifies challenges, opportunities and instruments needed to increase investments and encourage the development of new players, strengthen the existing ones, and further develop the pan-European capital market.