Dec 17 - Fitch Ratings today affirmed the National Asset Manager Rating
'M2-(bra)' (M2 minus (bra)) of Fator Administracao de Recursos Ltda. (FAR).
The 'M2-(bra)' rating is assigned to asset managers that demonstrate low
vulnerability to operational and investment management failure compared with
other asset managers in the same country.
FAR's National Asset Manager Rating reflects the asset manager's long track
record in equities and multimarket funds, supported by the adequate quality of
its investment process, with an emphasis on macroeconomic research and its
proprietary fundamentalist analysis of companies (bottom up). The rating also
considers FAR's good processes of controls, policies and compliance, as well as
the ongoing investments to support those activities, in addition to the
appropriate practices for funds accounting, settlement and custody.
Banco Fator S.A. (Fator) and its affiliated companies, such as FAR, have
undergone a significant restructuring process. Changes were made in the
composition and roles of FAR's senior management team in 2012 but without
significant impacts on its business model and investment decision-making
process. In the short term, this has had a neutral effect on funds' performance
and flows of the assets under management (AUM).
The investment process remains aligned with local market best practices.
Decisions are made on a collegiate basis and based on macroeconomic research and
fundamentalist analysis of companies to support asset allocation. The portfolio
management structure is segmented by type of strategy, allowing team
However, a longer period will be necessary to verify if the stability in
portfolios investment style will remain with the new organization of the senior
management. The asset manager maintains a relatively lean structure and new
changes on the investment team could introduce risks of continuity for its
development in terms of AUM flows, processes and control.
Roseli Machado, FAR's primary executive in Brazil since the creation of the
company, left the executive board in August 2012. She will be dedicated to
develop new projects for the asset manager overseas. The change in the structure
is part of a project that intends to expand the asset manager's business to
offer solutions to foreign and local investors in the medium term. Her base will
be in New York, in order to develop networks with foreign investors for domestic
products fundraising. FAR also aims to stimulate the sales of products with
cross-border investing to offer wide diversification to its local investors, in
the extent allowed by regulations, as a complement to its existing strategies.
Roseli Machado continues to contribute to the asset manager's investment
process, despite her new role. Marcos Paolozzi was also hired in October 2012 as
Director of fixed income and derivatives, previously under the responsibility of
Damont Carvalho in the last seven years. Patricia Stierli has assumed FAR's
general management and continues to be responsible for the equities strategies
and research team.
Risk management relies on good controls, policies, degree of automation and
formalization. These processes have been improved following the continuous
enhancements made since 2009, when the team was strengthened and investments
were made in controls and systems. The risk, compliance and internal control
structures are corporate-wide for the Fator group and adequate for the current
AUM and regulatory requirements, with appropriate independence and supervision.
Funds have not presented market risk limit breaches. Deviations in concentration
limits were low and promptly addressed.
The asset manager's AUM flows are expected to be favored in 2013, as well as of
its main competitors. The lower local interest rates environment may continue to
stimulate the migration to riskier assets in Brazilian industry. On the other
hand, FAR has a concentrated client base, with institutional investors
historically representing around 77% of the total AUM. Furthermore, it has shown
high AUM volatility, especially in periods of higher risk aversion. AUM totaled
BRL3.9 billion in September 2012 (BRL3.6 billion in 2011 and BRL5.9 billion in
2010), with around 35% in equities funds.
FAR relies upon good quality of outsourced services for fund accounting,
settlement and custody, primarily provided by specialized institutions such as
Itau Unibanco Holding S.A. (Local Currency IDR 'A-'/Outlook Stable).
Nevertheless, the asset manager's middle and back office areas carry out
reconciliation procedures to avoid operational failures in the settlement of
positions and the calculation of fund net asset value. FAR has also benefited
from improvements to its internal controls. The company systematically reviews
the efficiency ratios of its primary processes, which are applied to its main
The asset manager also has adequate technological platforms, with basic security
resources, supported by the corporate structure. The contingency plan is
satisfactory and is formally tested annually, with redundancy for the critical
Among the key challenges for FAR is to present lower AUM volatility and higher
diversification of its client base. Other challenges include the development of
the new organizational structure of the senior team, sustain good performance on
a recurring basis throughout market cycles and continuous improvements in
controls, as well as the implementation of the international fundraising
strategy in the medium and long terms.
FAR's rating 'M2-(bra)' is based on the following score categories, which
represent a scale from '1' to '5', '1' being the highest possible:
Organizational Structure and Teams: 3.00
Risk Management and Controls: 2.25 (from 2.50)
Portfolio Management: 2.50 (from 2.00)
Investment Administration: 2.25 (from 2.50)
FAR was established as an independent asset manager in 1997 and focuses on
active portfolio management of equity and multi-market fund classes, which are
more volatile by nature. The distribution between these products has changed,
although historically about 50% of AUM is related to equity strategies.
According to the Associacao Brasileira das Entidades dos Mercados Financeiro e
de Capitais (Anbima), FAR was the 49th largest Brazilian asset manager in
September 2012 with AUM of BRL3.9 billion and the 19th in equity funds.
FAR is a wholly owned subsidiary of Banco Fator S.A. with a track record in
equity research and transactions, mainly in mid- and small-caps companies listed
on BM&FBovespa (the Brazilian stock, commodities and futures exchange). It was
one of the pioneers asset managers in this sector.
The rating is sensitive to adverse changes in any key driver of its
classification, which could be altered in the event of a significant deviation
from Fitch's guidelines.
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.