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Pirelli to launch first opportunity fund

The real estate management arm of Italy’s famous tire manufacturer targets €1 billion ($1.5 billion) for deployment in Europe.

Pirelli Real Estate today revealed plans for its first opportunistic vehicle as it also declared a two-year cost cutting program.

The Milan-based firm wants to raise €1 billion ($1.5 billion) in a fundraising effort this year as it seeks to add to its stable of funds and investments which predominantly focus on residential, commercial property and non-performing loans in Italy and Central and Eastern Europe.

Pirelli disclosed the plan for its maiden opportunity vehicle while reporting weakened first quarter results. In a statement, the firm said it expected a weak first half of the year but that it was confident of a pickup in the second.

The opportunity fund would increase Pirelli’s assets under management in 2008 from €13 billion to €17-18 billion, it said. At the same time the firm is implementing a two-year cost savings exercise and corporate streamlining program focused on higher value-added activities. The measures should save the company up to €30 million in 2009, it said.

“Although in the first half our results will reflect the general sector downturn, we are confident of an improvement in the second part of the year, confirming our already solid financial structure, not having suffered from the recent credit crunch” said Carlo Puri Negri, chief executive.

He added that Pirelli’s strategy for 2008 would focus on its core and core-plus portfolios in Italy, as well as residential projects in Germany and developments in large Italian and Eastern European urban centers. “During the year we also intend to start a fund raising activity in order to launch in the next months our first European opportunistic fund.”

The firm’s restructuring plan would help boost “profitability and boost operational efficiency”, he said, and involve, “optimizing the asset management and service platforms and staff in Italy and Germany with the goal of saving up to €40 million in costs at regime.”

Net income in the first quarter fell from €35 million to €27 million, according to the first quarter results. Following the general slowdown throughout the sector, the firm made sales of €199 million in the quarter compared to €641.3 million at March 31, 2007.