SAO PAULO & RIO DE JANEIRO, Brazil--(BUSINESS WIRE)--On July 8, 2011, Fitch Ratings affirmed the 'M1(bra)' National Asset Manager Rating of HSBC Gestao de Recursos Ltda. (HSBC Gestao de Recursos).
The National Asset Manager Rating of HSBC Gestao de Recursos factors its conservative profile in the management of third party assets, as well as its integration with the group's global asset management area, using well formalized and consistent management practices and processes, risk controls and compliance. The rating also benefits from the strong franchise of the parent, HSBC Holdings Plc. (HSBC Holdings, IDR 'AA'/Outlook Stable), one of the largest banking groups in the world, and by its large investments in technology. The rating does not consider private banking activities and third-party fund of funds management.
Like other asset managers, HSBC Gestao de Recursos has sought to boost sales of more sophisticated funds. Fitch considers this strategy a challenge due to the aggressive competition of local asset managers for management fees, fund performance and greater commercial approach to foreign investors. Nevertheless, HSBC's good franchise as a global asset manager and the efforts to strengthen its distribution area are expected to continue to benefit its fund inflows, especially from foreign investors. Nevertheless, the increases in the financial operations tax (IOF) brackets in December 2010 and the aversion to risk generated by international crises have jeopardized fund inflows coming from such investors, as demonstrated in the first quarter of 2011 (1Q'11). Consequently, the asset manager has reduced its goals for 2011, in terms of both volume and revenue, which Fitch considers adequate and in line with local industry projections.
There were no significant changes in the asset manager's structure in the last year. Deviations from limits have been low, basically due to securities price appreciations that resulted in fund limits being exceeded. These were immediately regularized. Fitch considers the risk area to be lean, given its important responsibilities, such as market risk, liquidity and operational control, among others. However, its good systems and controls, as well as its conservative profile, have enabled monitoring, with no surprises, reducing the risk of the limitations that its risk controls and systems development reveal. Furthermore, the asset manager is implementing a new fund administration system that will enable verifying operations in real time and allow blocking of operations that do not conform to fund limits, among other improvements, reducing operational risk and enhancing the automation and agility of its controls.
HSBC Gestao de Recursos presented an average compound growth of 14% between 2006 and 2010, virtually in line with the industry, driven mainly by funding from foreign investors, HSBC group's brand and extensive international distribution. Despite being satisfactory, the group's branch network in Brazil is not a large sales channel for funds, since they compete with other investment products, such as deposits.
Despite its investment funds having generally been above the benchmark, the performance of HSBC Gestao de Recursos' funds was modest compared with its peers in 2010. Around 36% of its assets under management (AUM) fell within the first and second quarters. In turn, the performance of those funds improved considerably in the first five months of 2011, with most funds above the performance benchmark and 75% in the first two quarters, highlighted by the credit funds.
The HSBC Gestao de Recursos is a business unit of HSBC Brasil, the fourth largest private bank in the country ranked by assets. The bank is controlled by HSBC Holdings, one of the largest financial and banking conglomerates in the world.
HSBC Gestao de Recursos is the sixth largest asset manager in Brazil, with 4.9% of market share and AUM of BRL83 billion as of December 2010.
The 'M1(bra)' rating is assigned to asset manager operations which show the very lowest vulnerability to operating and investment management failures. According to 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, HSBC Gestao de Recursos' 'M1 (bra)' rating is based on the following category scores, which represent a scale from 1 to 5, with 1 as the highest possible score:
Company & Staffing: 1.50
Selection of Managers and Funds: 1.75
Portfolio and Risk Management: 1.50
Investment Administration: 1.75
Technology: 1.75
The rating may be sensitive to significant adverse changes to any of the aforementioned rating drivers. A material deviation from Fitch guidelines for any rating driver could cause the rating to be lowered by Fitch. For additional information on Fitch asset managers' guidelines, please refer to the criteria referenced below, which can be found on Fitch's websites, at 'www.fitchratings.com' or 'www.fitchratings.com.br'.
Additional information available at 'www.fitchratings.com' or 'www.fitchratings.com.br'.
Applicable Criteria and Related Research:
--'Reviewing and Rating Asset Managers' (Aug. 13, 2010);
--'National Scale Asset Manager Rating Criteria' (July 02, 2010);
--'Reviewing and Rating Fund of Hedge Fund Managers' (June 22, 2009).
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
Reviewing and Rating Fund of Hedge Fund Managers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=450928
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