The Italian Ministry of Economy and Finance has exempted Italian real estate funds, set up under hedge fund rules, from leverage limits placed on ordinary real estate funds. Even though the decree 256 of October 14, 2005, exclusively addresses the capability of real estate funds leveraging their investment, it opened a general discussion on the possibility of structuring real estate funds under the more flexible hedge fund rules, and whether these would still benefit from the advantageous taxation regime enjoyed by real estate funds.
Decree 228 of May 24, 1999, limited the leverage to 60% of a fund’s real estate assets’ value, plus an additional 20% of the remaining assets’ value. Many managers of Italian real estate funds considered this threshold as too low and damaging to their ability to compete with other investors, especially in times of low interest rates. After long discussions, the Ministry of Economy and Finance compromised: nothing would change for the ordinary real estate funds, but fund managers could create hedge funds investing in real estate and thus increase leverage capability. The insertion of an exception to the rule, without
regulating any further, has left numerous questions.
