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TEXT - Fitch affirms Schroder Investment Management Brasil
February 8, 2013 / 7:21 PM / in 5 years

TEXT - Fitch affirms Schroder Investment Management Brasil

(The following statement was released by the rating agency)
    Feb 8 - 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'. 

 (Caryn Trokie, New York Ratings Unit)

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