SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'M2(bra)' National Asset Manager Rating for Schroder Investment Management Brasil S.A. DTVM S.A. (Schroder Brasil). The 'M2(bra)' category is assigned to asset managers that demonstrate low vulnerability to operating and investment management failures.
KEY RATING DRIVERS
The National Asset Manager Rating of Schroder Brasil reflects its recognized franchise as a global and independent asset manager, and benefits from the strong financial capacity of the Schroders Plc group (Schroders Plc, IDR - Issuer Default Ratings 'A+', Stable Outlook by Fitch) and the company's long business track record as third-party asset manager. The asset manager is strongly integrated with its head office, both in the investment process and the risk and compliance areas, with well-established methodologies and controls.
Schroder Brasil'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 and Staffing: 2.50 (from 2.00)
Risk Management and
Controls: 2.00 (from 2.50)
Portfolio Management: 2.00 (from 1.75)
Investment
Administration: 2.25 (from 2.50)
Technology: 2.50 (from 3.00)
Schroder Brasil has presented a significant decline in assets under management (AUM) of equity strategies since mid-2011. This movement was due to the low performance of equity funds, being offset by the increment in the volumes of fixed-income funds at the distributors, mainly in 4Q12. Despite the lean structure, the AUM flows in equity funds have affected company's results, through lower income from management and performance fees, which resulted in net losses since 2011.
Fitch believes that one of the main challenges faced by Schroder Brasil is to improve the performance of equity funds, mainly due to the fact that this is its main focus in the country and that it is a recognized player in the segment. The development of the new investment process in equity and the reduction of portfolio managers' turnover are also important challenges, as well as expansion of its offering into other products such as fixed-income and multi-market funds which have helped to reset AUM. Strong concentration is also seen in its client base, even though Fitch considers this feature to be a natural given the more restricted focus of its product and distribution strategy.
The risk and compliance structure is solid, maintaining a strong integration with its parent. Schroder Brasil uses the well-established methodologies and policies of the group to ensure compliance with internal norms and local rules. The parent also holds supervision on risk and compliance controls and regularly participates in risk committees. The change of manager risk control, in late 2011, took place without disruptions in the processes. Moreover, the group's internal audit, located in London, reinforces the segregation of activities and supervision of policies and controls. Fund limits have not shown relevant non-compliance breaches and the asset manager has presented a good liquidity track record.
Despite qualified and experienced, the investment team is relatively new in Schroder Brasil, most of them since 2011. In addition, following the departures of former equity portfolio manager, Carlos Scretas, in mid-2012, the equity funds process went through some changes to include more top-down and sectorial view, as it already happened in case of other funds' processes, in an attempt to improve the performance of the segment. However, it shall require a longer period to verify the evolution of these changes and of the new portfolio managers. Nevertheless, Schroder Brasil's investment process is well-formalized and executed through committees. It relies upon strong macroeconomic research and fundamentalist corporate analysis, good operational systems and risk controls to support allocation and risk mitigation decisions.
Administration and custody activities are outsourced to three large financial conglomerates, which strengthens the segregation of its activities. These services are standardized, fully integrated and automated, being supervised by the asset manager's middle office area, which performs a wide reconciliation of these operations.
Despite lean technology area, Schroder Brasil relies on good asset/portfolio control systems, which enables pre-trading blocking and alerts, as well as the elaboration of fully automated and integrated management reports. Following the implementation in 2011, these systems have improved the reconciliation, trading and compliance's processes, making them more robust and less susceptible to operational failures. The asset manager also receives regular support from specialized IT companies. The contingency plans are adequate, with redundancy in all critical systems.
Schroder Brasil is a fully owned subsidiary of Schroders Plc and was established as an office in 1994. Headquartered in London with presence in 25 countries, Schroders Plc's dates back to 1804 and has been listed on the London stock exchange since 1959. Its franchise in asset management is well recognized. The group's core subsidiary, Schroder Investment Management, is a global asset management company, rated 'M1' by Fitch, with AUM of GBP203 billion in September 2012 and Schroder Brasil had AUM of BRL2.7 billion.
RATING SENSITIVITY
Schroder Brasil's 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 lead 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 is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Reviewing and Rating
Asset Managers'(Aug.13, 2010);
--'Schroder Investment Management'
(Jan. 23, 2013);
--'Schroders Plc' (Oct. 9, 2012);
--'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
Schroder
Investment Management - Asset Manager Ratings
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696671
Schroders
Plc
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=675040
National
Scale Asset Manager Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=536665
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