Fitch Affirms BTG Pactual Asset Management's Rating at 'Highest Standard'

SAO PAULO & RIO DE JANEIRO--()--Fitch Ratings has affirmed the International Scale Asset Manager Rating at 'Highest Standards' for BTG Pactual Asset Management DTVM S.A. (BTG Pactual Asset). The Rating Outlook remains Stable.

Key Rating Drivers

BTG Pactual Asset's 'Highest Standards' rating reflects Fitch's opinion that the manager's investment platform and operating framework are superior relative to the standards applied by institutional investors in international markets.

The rating of the asset manager also reflects the benefits of being part of Banco BTG Pactual (BTG Pactual, IDRs 'BBB-'/Outlook Positive). BTG Pactual is one of the largest merchant banks in Brazil. The rating also considers its well-disciplined and elaborated investment process, qualified and experienced management, and its robust risk controls and compliance framework.

BTG Pactual Asset's rating applies only its domestic Brazilian operations in traditional funds and does not include its overseas asset management activities, wealth and private banking management areas, or those related to real estate funds and third-party funds of funds. All these activities have their own processes and policies and are segregated from the management of traditional funds.

Fitch believes that BTG Pactual Asset's main challenges relate to the continued execution of the group's international expansion process, and the continued delivery of good returns in its funds on the backdrop of strongly competitive and volatile environment. The asset manager also needs to consolidate its franchise in the equity funds segment and to continue investing in tools and controls to support the increase of assets under management, international assets in particular.

The 'Highest Standards' rating is based on the following assessments:

Company: Highest

Controls: Highest

Investments: Highest

Operations: From High to Highest

Technology: High

Company

BTG Pactual Asset is part of a strong financial conglomerate with significant experience and a well-established franchise in the Brazilian asset management industry. It ranks as the fifth largest asset manager in the country and is one of the group's main business lines, contributing with 15% to 20% of the group's results since 2009. Despite the 4.4% decline in AUM in the first quarter of 2014, the manager has maintained a strong growth in its AUM (11% in 2013), above the local industry (9%). This trend is expected to remain going forward as investors continue to seek more sophisticated funds. This growth reflects good investment performance within managed funds through 2013, and the fact that BTG Pactual Asset is part of a complete merchant bank with strong company and investor relationships. In line with the broader multimarket fund sector, BTG Pactual Asset's multimarket funds have not reported good performance in 2014.

AUM growth has, in large part, come from private and foreign investors which now account for a greater portion of AUM going from 21% and 12%, respectively, in 2010 to 41% and 17% in December 2013. The corporate investor, in turn, accounted for decreased AUM going from 31% to 15% in the same period, in part due to withdrawals to satisfy cash needs. Pursuant to group strategy, the asset manager intends to increase its overseas business as one of the ways to grow and achieve international standing. The group has established or acquired institutions in important international financial centers, including asset managers in Chile and Colombia. This expansion will diversify its investor base and expand the AUM, but will require platform integration in different locations and greater attention to risk controls.

The asset manager relies on a solid organizational structure and corporate governance, segregated from the other activities of the group. It maintains an adequate structure for the number of funds and investment strategies, concentrated on multimarket funds (40% of AUM as of December 2013). Executive turnover is low, benefiting from the compensation policy.

Controls

Risk control, compliance and internal audit frameworks are corporate, being robust and fully segregated from the asset manager. These areas rely on a full set of policies and controls, in addition to regular committees and daily reports to the main executives, which ensures compliance with internal norms and local rules. Fund limits have not reported relevant breaches.

Investments

The investment process, one of BTG Pactual Asset's strengths, is a well-formalized and committee based process equipped with an experienced and qualified team. It relies on a deep macroeconomic and fundamental company analysis, as well as wide access to market information. Additionally, the investment process benefits from robust risk controls with large emphasis on the liquidity of positions. Key person risk is not relevant given that the main executives are partners of the institution and the second level of investment professionals, as well as executives of other group areas, are also highly experienced.

Operations

The fiduciary administration and custody activities are mostly provided by the group and present a good degree of process automation, which is common industry practice among Brazilian asset managers that are part of larger financial groups. The processes observe regulations and best practices, and are supported by tested technological platforms. These services are standardized, integrated and automated, being overseen by the middle office area and by the group's risk area, with reconciliation of all the operations.

Technology

BTG Pactual Asset relies on sound technological resources, benefiting from the group's corporate structure. Despite that, the group is revamping its entire technological infrastructure with the assistance of a renowned consultant, seeking greater scale and a global presence, as well as integration of its functions and systems. The asset manager is in the process of updating its proprietary front office system and implementation of a new global system for NAV calculation, with completion of this process forecasted occur towards the end of 2014. Its current systems already allow pre-trade blocks and alerts with sound reconciliation and compliance processes. Contingency plans are robust and well-formalized, with back ups of all critical systems.

Company Profile

BTG Pactual Asset is a full subsidiary of BTG Pactual, controlled by Andre Esteves. Founded in 1983 as a brokerage house, the BTG Pactual group began to manage investment funds in 1984. BTG Pactual Asset is the fifth largest asset manager in Brazil (the largest without a retail network), with a 5.5% share of the local market and AUM of BRL135 billion in December 2013.

Rating Sensitivities

BTG Pactual Asset's rating could be sensitive to relevant adverse changes to any of its rating drivers, particularly in case of a weakening of its financial profile, high turnover of key staff, or deterioration in processes and policies. An important deviation from Fitch's guidelines for any key driver could also lead to a rating downgrade.

To obtain additional information on Fitch's criteria for rating asset managers, consult the criteria mentioned below, available on Fitch's websites, at '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' (May 6, 2014).

Applicable Criteria and Related Research:

Asset Manager Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747701

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=829489

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Contacts

Fitch Ratings
Primary Analyst
Pedro Gomes
Director
+55-11-4504-2604
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor - Cerqueira Cesar
Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst
Alexandre Yamashiro, CAIA
Director
+55-11-4504-2606
or
Tertiary Analyst
Lucas Bender
Analyst
+55-11-4504-2217
or
Committee Chairperson
Davie R. Rodriguez, CFA
Senior Director
+1 212-908-0386
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Pedro Gomes
Director
+55-11-4504-2604
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor - Cerqueira Cesar
Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst
Alexandre Yamashiro, CAIA
Director
+55-11-4504-2606
or
Tertiary Analyst
Lucas Bender
Analyst
+55-11-4504-2217
or
Committee Chairperson
Davie R. Rodriguez, CFA
Senior Director
+1 212-908-0386
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com