OREANDA-NEWS. Fitch Ratings has affirmed Fabrica Immobiliare SGR's (Fabrica) Asset Manager Rating at 'High Standards'. The Outlook is Stable.

KEY RATING DRIVERS
The affirmation is driven by the growth in Fabrica's business, the addition of appropriate resources relative to the growth, the stability of key processes and the demonstration of the interaction with CBRE Global Investors via a domestic fund launch. The rating is supported by the company's strong risk oversight, high-quality research (a differentiating feature of the company) and its solid operational processes. The company may face tax and operational complexities in establishing cross border asset management.

Fitch understands that Banca Monte dei Paschi di Siena SpA (BMPS, BBB/Negative/F3) will dispose of non-core businesses in line with regulatory guidance. It is not clear whether Fabrica, 49.99% owned by BMPS, falls into this category. Any material change in the ownership of Fabrica would cause Fitch to review its rating. In particular, Fitch could take negative rating action if it assessed the new shareholder as having a weaker financial profile than the existing shareholders.

There have been recent changes to the senior management team and some staff turnover. Fitch considers that the changes relate to the growth of the company but that training and integrating new joiners may present the firm with a challenge. The new CEO has experience in the Caltagirone group, Fabrica's other main shareholder. In 2014 there were eight departures from Fabrica and 18 joiners (including some internal transfers).

Fabrica's 'High Standards' rating is based on the following category scores (all unchanged):

Company: High
Controls: Good
Investments: High
Operations: High
Technology: Good

Asset Manager Ratings are assigned on a descriptive scale based on Fitch's assessment of the manager's investment and operational platform. Asset manager operations in the 'High Standards' category demonstrate an operational framework that Fitch considers high relative to international institutional standards.

COMPANY
Fabrica is on target to achieve the key milestones of its 2014-2016 business plan. However, there is some uncertainty given the forthcoming change to the shareholder base and recent staff turnover at both senior and other levels of the company.

The growth in assets under management has contributed to a modest improvement in Fabrica's earnings before tax margin. It has also been accompanied by growth in staff numbers, in line with the expanding requirements of the business. The partnership with CBRE Global Investors has resulted in the launch of Fondo Cicerone. To date, there have been no joint international investments, pending the implementation of an appropriate investment holding company structure.

CONTROLS
The risk and control framework provides multi-level assessment of business and fund risks including third-party oversight, based on a three lines of defence model. Property risk management is fully embedded in the investment and maintenance processes and quantified through uniform risk analytics. Retaining staff in the risk management function has proved challenging, reflecting high demand for specialist property risk management personnel. Fabrica suffered turnover in this function in 2014. It also entered into an agreement with a third-party supplier, Prometeia, to provide risk management (notably operational risk management) services and expanded its interaction with a local data provider for tenant and contractor credit monitoring. A risk and control committee featuring the two independent directors and relevant risk, compliance and audit staff was implemented in 2014.

INVESTMENTS
Fabrica's investment teams experienced strong growth in 2014 (plus six staff net), in line with the growth in assets and complexity of new funds. In Fitch's opinion, the calibre of new joiners is high. The agency believes the large number of new joiners may present an organisational challenge to the firm until they are fully integrated. This risk is mitigated by the continuity and oversight provided by senior staff. Asset selection is research-driven and Fabrica's research capabilities are a particular strength. The decision-making process is well structured. In 2014 some formalisation of authorities occurred in line with a revised organisational structure. Investment quality management is sound, with regular reviews of sources of returns.

Co-operation with CBRE appears to be working well, with formalised interactions and agreed procedures, as evidenced in the collaboration on Fondo Cicerone, launched in December 2013 and with EUR273m in assets under management as of end-December 2014. However, the international property investing process has not yet been fully tested, pending the implementation of an appropriate structure to house international investments, which Fabrica expects to implement in 2015. Nonetheless, a 'dry run' of the process in relation to a property in Germany worked according to plan in 2014.

OPERATIONS AND TECHNOLOGY
The portfolio managers are supported by a dedicated middle office and automated workflows between agents, providing an adequate match for the current volume and business. In Fitch's view, reporting scope and quality represent high standards in the institutional sector, including an improving ability to customise reporting for key clients in 2014. Reporting quality exceeds regulatory requirements.

Fabrica's business platform is adequately automated based on vendor systems and adapted to accomplish steady workflows. Data management and quality is sound but Fabrica relies exclusively on external services. Standard business continuity procedures are in place and tested.

COMPANY PROFILE
Fabrica is a Rome-based real estate investment fund manager. It was created in 2003 and started operations in July 2004. The company is dedicated to the development, promotion and management of (closed-end) real estate investment funds for institutional clients and private savers. Fabrica managed one retail fund and 12 funds for qualified investors, with gross assets under management of about EUR2.9bn as of end-June 2014, compared to EUR2.5bn at end-2013. The company had 55 staff, of which 25 were investment professionals as of end-December 2014, compared with total staff of 46 and 15 investment professionals at end-December 2013.

RATING SENSITIVITIES
The rating may be sensitive to material adverse changes to any of the rating drivers. A material deviation from Fitch's guidelines for any key rating driver could cause the rating to be downgraded.

Any material change in the ownership of Fabrica would cause Fitch to review its rating. In particular, Fitch could take negative rating action if it assessed the new shareholder as having a weaker financial profile than the existing shareholders..

For additional information about Fitch's asset manager ratings guidelines, see the criteria below.

In accordance with Fitch's policies the issuer appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome.