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Institutional Investor Profile: Giorgio Buggio, Portfolio Manager, Compagnia di San Paolo
07/11/2006. Source: AltAssets. 
Giorgio Buggio on Compagnia di San Paolo's allocation to private equity, on what kind of funds his team seeks, and on the foundation's mission to support the Italian economy and society. Turin-based Compagnia di San Paolo is a charitable foundation active in the sectors of scientific, economic and juridical research, education and art, and the preservation and valorisation of cultural heritage and activities, health, and assistance to the socially deprived of society. The foundation also supports the development of the economy across Italy.
Compagnia di San Paolo's target allocation to private equity is currently ten per cent of the free capital that the foundation manages (worth approximately €4bn). Its investment plan has been developed by Cambridge Associates with internal staff support and refers to buy-out as well as venture capital, with a little preference for smaller Italian and mid-market buy-out funds.
What type of investments do you look for?
'The greater part of our capital is in buy-out and venture capital funds, although we also have smaller amounts of capital invested in funds of funds, as well as in some secondaries funds. Cambridge Associates acts as our advisor for our allocation and manager selection.
Our private equity investment programme is split into two parts: the Return Enhancement Programme looks at well-known and top quartile private equity managers worldwide, while our Local Bias Programme is what we term "mission-related". Our foundation's mission is also to contribute to the growth of the Italian economy, and our team does this through supporting Italy-based fund managers that focus on investing in smaller and mid-sized companies. Overall, we have allocated 80 per cent of our capital to the Return Enhancement Programme and 20 per cent to the Local Bias Programme.
For reasons of diversification, we include both generalist and specialist funds inside our portfolio. By geography, around 45 per cent of our investments are based in the US, while 55 per cent are outside the US, mainly, we have to say, in Europe - but increasingly also in Asia.
Funds we have invested in - through our Return Enhancement Programme - include Horsley Bridge International III, Horsley Bridge International VIII, KKR European II, Dover Street VI, Blackstone Capital Partners V, Polaris Venture Partners V, Nordic Capital VI, Charterhouse Capital Partners VIII, Phoenix Equity Partners V, Siguler Guff - Distressed Opportunities II, Texas Pacific Group V, Centerbridge Capital Partners, Permira Capital Partners IV and Berkshire.
Through the Local Bias Programme, we have also backed funds such as Sanpaolo - Fondo per il Mezzogiorno, Sanpaolo - Fondo Centro Impresa, Sanpaolo Fondo N.ord O.vest, Fondo Clessidra Capital Partners, and Fondo P.P.P. - Partner. Pubblico Privato.'
Do you invest directly?
'No, we do not invest directly.'
What size of investments do you make?
'Well, we tend to commit between €10-20m per fund. There have been exceptions, but they have all been within our Local Bias Programme.'
How do you find out about good investments?
'As we are a relatively new investor in private equity, we delegate the search for the very best investment opportunities to Cambridge Associates. They do the full due diligence for each GP on our behalf, then make their recommendations for potential new investments to Compagnia di San Paolo. After that, it is then down to us to make the final investment decision.'
How many investments do you intend to make over the next year?
'Each year we aim to commit €90-95m of the capital in the Return Enhancement Programme, with a further €25m of the capital in the Local Bias Programme going to commitment. In terms of new fund relationships, we aim towards taking five to seven in our main programme and two in the Local Bias Programme.'
What is your appetite for first-time funds?
'We have been known to invest in first-time funds. Most of the first-time funds we have backed to date have been spin-outs, but we have also thrown our support behind a few first-time teams. When we are considering first-time teams, we need to be confident that their people will work together for some time and will perform well for us.'
Would you consider acquiring an LP stake in a fund from a fellow LP?
'As our portfolio is maturing and we are becoming a more experienced private equity investor, we might well consider looking at acquiring other LPs' stakes in funds. Currently, though, we are not active in the secondary market. For us, this is more a thing of the future to take forward.'
What are the most interesting countries/sectors going forward?
'We believe that Asia could represent one of the most interesting geographic areas for private equity investing in the future. In addition to that area of development, we believe that venture capital in Europe as well as in the US will continue to seem very promising.'
What is the biggest issue in the private equity industry?
'In Italy, I think we can say that investing in private equity has become increasingly fashionable over the past two years. My concern here is that when institutions invest in the asset class just because it is what everyone else is doing at the moment, some investors may pick the wrong opportunities and in doing so, lose quite a bit of money.
We are also concerned about how much capital is coming into the asset class right now, although we still think there are opportunities for good, disciplined GPs to put that money effectively to work.'
How do you think the market will change in the future?
'We trust that the market will come down to a more moderate level again.'
How would you describe the market environment in which you are operating?
'With regards to the Italian legal environment: it is favourable. It is easy for Italian investors to invest in Italian funds. However, outside Italy, we face some tax and legal challenges.'
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