SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)--On July 8, 2011 Fitch Ratings assigned an initial 'M2+(bra)' National Asset Manager Rating to BNY Mellon ARX Investimentos Ltda. (BNY Mellon ARX). BNY Mellon ARX is a wholly-owned subsidiary of The Bank of New York Mellon Corporation (BNYM, Issuer Default Rating 'AA-', Outlook Stable), the world's largest custodian and trustee of securities and one of the 10 largest in a number of other businesses, such as third-party asset management, with a volume of USD1.2 trillion.
BNY Mellon ARX's National Asset Manager Rating reflects its franchise, the expertise and independence of the manager with a focus on equity and alternative (based in macroeconomic scenarios) investment strategies where the company can demonstrate its competitive edge. It also takes into account the quality of the risk management (market, liquidity and operational) and compliance framework, besides the governing principles provided by its key shareholder. The rating benefits from operational excellence in investment administration and the underlying robust technological platform.
The rating also portrays the relatively shorter track record of BNY Mellon ARX following the restructuring of the company and portfolio management post BNYM's January 2008 acquisition. As an independent player, BNY Mellon ARX is more dependent on fewer highly specialized key individuals. However, the observed integration of BNY Mellon ARX with its parent, BNYM greatly mitigates this risk in Fitch's opinion. Fitch also believes that the comparably complex and inherently more volatile strategies as well as the centralized nature of the portfolio construction decision making processes expose BNY Mellon ARX to a stronger vulnerability and risk of investment process - despite the strong underlying market risk management capacity of the asset manager.
BNY Mellon ARX's rating also reflects its solid financial strength, which is a important contributor to the group's results in Brazil. The organizational structure provides for an adequate segregation of duties and investment staff appears well qualified reflecting the specialist skill needed to conduct its business. Nevertheless, as mentioned above a key person risk prevails also recognizing the higher turn over of industry and the limited pool of available replacements in the industry.
BNY Mellon ARX's National Asset Manager Rating does not contemplate its asset management activities overseas, the private banking and fiduciary lien areas nor those related to funds-of-funds managed by third parties, which have their own processes and policies and are segregated from the management of proprietary funds.
BNY Mellon ARX's risk management benefits from the group's risk control which provides good oversight to senior management including a focus on key risk factors. Fitch notes particularly the strength in market risk management that includes scenario analysis and the capacity to perform stress tests. In Fitch's view risk management practices account well for the higher complexity and the scope of risks at the fund and company level.
Fundamentally oriented portfolio management processes are well structured and driven by an investment committee, backed by dedicated resources for macroeconomic and bottom-up equity research. Fitch recognizes the diligent strategic market evaluation and a disciplined team oriented approach despite dominance of the two lead portfolio manager and an observed lower level of formalization. Nevertheless in Fitch's view portfolio management processes form a solid foundation to achieve BNY Mellon ARX's stated investment objectives. The rating also factors in the effectiveness of the asset servicing activities which is externally delegated to a highly qualified and experienced provider, and the comparably high level of automation in trade life cycle management supported by its own internal middle office function.
BNY Mellon ARX has a well advanced and robust technology platform in line to main market peers. Fitch notes the level of security with respect to critical administration, information and decision making systems, particularly the existence of contingency plans which are formally tested twice a year.
Among the key challenges for BNY Mellon ARX are the maintenance of its investment performance in a volatile environment given the competitive nature of the industry and the continuous alignment of its resources with the projected growth of the company.
BNY Mellon ARX is a subsidiary of The Bank of New York Mellon Corporation, focused exclusively on asset management in Brazil. The company was formed in January 2008, following the announcement of the acquisition of ARX Capital Management by BNYM. As of May 2011, BNY Mellon ARX had BRL11.2 billion under active management among hedge, equity and fixed income strategies, with a diversified client base. It employs 50 staff of which 15 are investment professionals. Bank of New York Mellon was formed in July 2007 through a merger between The Bank of New York Company, Inc. and Mellon Financial Corporation of Pittsburgh.
Asset manager operations in the 'M2' National Scale category demonstrate low vulnerability to operational and investment management failure relative to the specific characteristics of the national market. In accordance with the applicable criteria report 'Reviewing and Rating Asset Managers', dated Aug. 13, 2010, in conjunction with 'National Scale Asset Manager Rating Criteria', dated July 2, 2010, BNY ARX's 'M2+ (bra)' rating is based on the following category scores, which represents a scale from 1 to 5, with 1 as the highest possible score:
Company & Staffing: 2.00
Risk Management & Controls: 1.75
Portfolio Management: 2.25
Investment Administration: 2.00
Technology: 2.00
The rating may be sensitive to material adverse changes to any of the aforementioned rating drivers. A material deviation from Fitch guidelines for any key rating driver could cause the rating to be lowered by Fitch. For additional information about Fitch asset manager ratings guidelines, please review the criteria referenced below, which can be found on Fitch's web site.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research
--'Reviewing and Rating Asset Managers' (Aug. 13, 2010);
--'National Scale Asset Manager Rating Criteria' (July 2, 2010).
Applicable Criteria and Related Research:
Reviewing and Rating Asset Managers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547947
National Scale Asset Manager Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=536665
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