Control System

The key principles that have always inspired Arpinge’s governance are the autonomy of management and operations from the ownership structure, full transparency and traceability of the decision-making processes and the professionalism and collegiate character of the analyses and decisions taken by the management.

These principles have been developed in the processes and organisational controls, of investment and control that the Company has decided to adopt in the process of self-regulation. In this sense, the definition of the Control System was conducted taking as benchmarks the principles and the supervisory regulations applicable to the asset management industry, obviously taking into account the specific characteristics of the Company and its unsupervised nature, also in terms of the proportionality and progressivity of its standard setting operations. In essence, since the start-up phase, the Control System has been established on the basis of process structures comparable to those now provided for an asset management company (SGR) or an investment company (SICAF or SICAV), to meet criteria of efficiency, effectiveness and proportionality. Also the structures adopted for solutions of governance of processes are modelled on international best practices, drawing on the principles of transparency and traceability of the decision-making processes; sequentiality of analysis and negotiation; articulation of control tools and collective decision-making, with considerable input from parties other than the proponents.

The current Procedures Manual governs the main risk areas of the business with an articulated body of procedures, which also includes:

Investment procedure – to regulate the phases of the Company’s Decision-making Process for the proposed investment or disinvestment, responding to different levels of risk and expected return, while regulating the performance of operations and monitoring activities. The independence and effectiveness of the process are ensured, among other things, by the creation of different levels of approval ordered hierarchically and by functional expertise, as well as with the establishment of a technical committee to provide advice and support, the Investment Committee.
Procedure for Conflict of Interests and Related Parties – which regulates the procedures for identifying and managing important or even potential conflicts of interest, which may involve the Company in the performance of its corporate activities, by providing the organisational and procedural means to minimise the risk of such conflicts or at least to manage them properly and in a traceable manner, in the interest of shareholders and all other stakeholders. In this sense, given the importance of the potential conflict with respect to the management and ownership structure, and also the economic dimension of the decisions to be taken, the decision-making processes will be strengthened or will be escalated to higher approval levels ensuring, in any case, the traceability of the decision-making path.
Organisational Procedure of Internal Control System – introduces and defines the main and relevant general criteria for the identification, assessment, measurement, management and reporting of the main risks identified to date regarding all corporate operations, including those related to non-compliance with the applicable regulations.

MODEL OF ORGANISATION, MANAGEMENT AND CONTROL REQUIRED BY ITALIAN LEGISLATIVE DECREE 231/2001

As part of its control tools, Arpinge has adopted a Model of Organisation, Management and Control pursuant to Legislative Decree 231/01 and to establish the Supervisory Board.

Italian Legislative Decree 231/2001 introduced the principle of responsibility of joint stock companies and other legal entities (the “Entities”) for a certain type of crime (“offences”) committed, in their interest or for their benefit, by their employees and/or senior management (e.g. directors, executives, representatives of the Entity, as well as by persons subject to their management or supervision), unless, among the other conditions, the Entity has adopted and effectively implemented a suitable model of organisation, management and control.

Arpinge adopted the Model on the assumption of honest and transparent operations by the shareholders and management thereof. In other words, it was again in this case considered appropriate – in line with the criteria of effectiveness, efficiency and proportionality – to align the governance of the Company to market best practices, in order to ensure the honesty and transparency of decision-making.

A detailed Code of Ethics was drawn up as an integral part of the Model pursuant to Italian Legislative Decree 231/01 adopted by Arpinge. This Code identifies the principles, behaviours and mechanisms of implementation to which the Company attributes positive ethical value and that are to be observed by all its recipients, namely the directors, the auditors, the individuals who work for the firm that performs the Company audit, its employees, including executives, as well as all those who, while outside the Company, work directly or indirectly for Arpinge (e.g. proxies, agents, employees of any sort, consultants, suppliers, and business partners).

INVESTMENT PROCEDURE – DECISION-MAKING STRUCTURE

The process of investment / disinvestment evaluation and decision making is divided into 4 phases, subsequent to the preliminary phase of the strategy definition that is summarized in an Investment Plan that takes into account (i) the analysis of the risk profile of the Company (Risk Appetite), (ii) the assessment of the existing portfolio risk / return profiles (iii) the valuation of the sectors / market areas that may be more attractive to the Company.

Phase A: Analysis Go-No Go, during which, after the receipt of a possible investment proposal and an initial screening, the CEO and the Investment Team evaluate the opportunity to continue the analysis activity, assigning internal tasks and responsibilities (also taking into account any conflicts of interest). During this phase the deal is officially launched , identifying a “Project Manager” and a “Project Team”;
Phase B: Desk analysis, during which – according to the additional analyses and the preliminary evaluations carried out, the Project Manager, along with the Project Team, drafts a summary document of the main characteristics of the Investment Opportunity (the “Proposal”) which is analysed in a dedicated meeting (“Screening Committee”) attended by CEO, Senior and Investment Team Partners, Project Team, the Head of the Planning and Control Department (“PS & CG”) and, where necessary, the Legal Counsel;
Phase C: Execution, during which the Investment Team carries out the due diligence of the investment and negotiates the terms of the deal with the counterpart. It also drafts a Definitive Information Memorandum (“Definitive Proposal”) that is subjected to the Investment Committee, and, once approved by the latter, to the Board of Directors for the final evaluation and approval. Then follows the stipulation of the contractual documentation necessary for deal’s execution;
Phase D: Monitoring and Disinvestment,carried out by: (1)the project manager of each industry, which, in coordination with the manager of the special purpose vehicle that realizes the investment and with the support of the Investment Team, follows the entire investment life cycle both from a technical and operational point of view; (2) by the PS & CG Department, which, through the periodic portfolio management activity, verifies that each investment guarantees the achievement of the economic / financial and profitability objectives established in the planning phase. To this end, the PS & CG function detects any deviations between planned objectives and results achieved, informing the CEO, which is committed to identify the appropriate corrective actions.