SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has affirmed today the International Scale Asset Manager Rating of 'Good Standards'; Stable Outlook for Equitas Administracao de Fundos de Investimentos Ltda. (Equitas). The rating covers only the manager's domestic activities.
KEY RATING DRIVERS
The rating affirmation reflects Fitch's view that Equitas' investment platform and operational framework is good relative to the standards applied by institutional investors in international markets.
Equitas' rating factors in company's good development as an independent asset manager in Brazil focused on local equity strategies. The rating also takes into consideration the experienced senior investment team, adequate control structure, appropriate governance reinforced by the company's partnership model, in addition to the well-defined investment process supported by in-depth proprietary research. The rating also benefits from the outsourcing of fund fiduciary administration and custody to well-established and specialized service providers.
Among Equitas' key challenges are reducing the AUM volatility, diversifying its client base as well as continue providing good investment performance and financial results in a backdrop of greater local competition and in periods of market stress. Other challenges include the continuous improvement of resources and internal controls capabilities to face projected AUM growth including the development of investment team to address 'key-person risk' as well as the deployment of initiatives for distribution to new type of investors.
Equitas' 'Good Standards' rating is based on the following assessment in each category covered by Fitch's rating criteria:
Company: Good
Controls: Good
Investments: High
Operations: Good
Technology: Good
COMPANY
Equitas is a boutique independent asset manager established in a partnership model which reinforces the company's governance and the stability in the senior management. The two founding partners are the co-portfolio managers and the three executive partners perform key functions in risk, trading and research. The overall structure is lean but adequate considering the current level of AUM and number of investment strategies, as well as the support of specialized third party service providers in compliance, risk controls and operational activities.
AUM has experienced strong growth recently, achieving BRL982 million at 1Q13 (BRL454 million in 2011). In 2012, funds presented very good risk-adjusted performance relative to the objectives and peers which has favored the increase in funding through third party distributors and fund allocators but without changing the high concentration of Equitas in this type of distribution channel. On the other hand, the number of end investors has increased to 1,784 at 1Q13 relative to 932 in 2011. The AUM increase and good fund performance have contributed to an increase in the company's profitability.
Equitas relies upon third party distributors and fund allocators given its smaller scale and limited distribution capabilities. The asset manager has implemented initiatives to improve the business resilience in response to the impacts of redemptions observed in 2011 and due to the high growth of AUM in 2012. The original main funds have been closed for new investments and new versions of same strategies have been launched with longer redemption terms. Equitas has also been structuring new products for pension funds and foreign investors to diversify the client base.
CONTROLS
The risk control framework is adequate and the functions are under the responsibility of an executive partner. Market and liquidity risk management rely on good controls and automation degree. Risk metrics are well-integrated in investment guidelines with clear and fragmented limits by asset and strategy level which are more restrictive than the overall portfolio limits.
The funds have not experienced market and liquidity risk breaches or deviation in investment policy constraints. Compliance and internal controls have basic resources but the outsourcing of fiduciary administration to a well-established financial conglomerate contributes to the appropriate practices according to regulatory requirements.
INVESTMENTS
Investments resources are adequate and the discipline is strengthened by the detailed and formalized investment guidelines which also provide good capabilities for investment decision tracking and performance attribution metrics. There is a certain level of centralization in decision-making process, despite the utilization of committees.
Equitas focuses in equity strategies of long-biased, long-only and primarily in long-short (77% of AUM). The investment process is supported by the high quality of in-depth proprietary research for a selected universe of companies and the utilization of diversified investment strategies. The investment team is organized with separation of functions among portfolio management, trading and research. The research team has been strengthened to extend the coverage of companies.
OPERATIONS
Equitas relies upon the good quality of outsourced fiduciary administration and custody services, provided by specialized institutions, primarily by companies of the BNY Mellon and Bradesco groups. Nonetheless, the manager's middle office area carries out adequate reconciliation procedures in order to avoid operational failures in the settlement of positions and in NAV calculations. The reporting to institutional investors presents good standards with comprehensive analysis of metrics and investment rationale.
TECHNOLOGY
The technological platform that serves the company's overall requirements counts on basic support, security and contingency resources. However critical databases for fund assets and liabilities are maintained by the fiduciary administrator. An external front office system is expected to be implemented in 2013 in order to improve the productivity and control of activities in the near term.
COMPANY PROFILE
Equitas is a boutique independent asset manager in a partnership model with AUM of BRL982 million as of March 2013. The company, headquartered in Sao Paulo, Brazil, was created for corporate finance advisory in 2003 and has been dedicated solely for investment management services since 2006. Portfolio management is performed with an equity multi-strategy approach for three main fund classes that seek to achieve long term risk-adjusted performance above the respective benchmarks. The distribution is oriented to local dealers mainly through financial institutions platforms, independent advisory firms, multi and single family offices, and more recently to local pension funds and foreign investors.
RATING SENSITIVITIES
The rating may be sensitive to material adverse changes to a combination of the aforementioned rating drivers. Specifically, should Equita's financial condition deteriorate or it suffer the unlikely loss of key staff then Fitch may conclude that it is no longer able to maintain the 'Good Standards' of its investment platform and operational framework, which could lead Fitch to lower its assessment in individual categories or to downgrade the rating. To obtain additional information on Fitch's asset manager rating criteria, consult the criteria mentioned below, available on the Fitch websites, 'www.fitchratings.com' or 'www.fitchratings.com.br'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research
--'Asset Manager Rating Criteria (April 19, 2013)
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792380
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