SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has affirmed the International Scale Asset Manager Rating at 'Good Standards' for Fides Asset Management Ltda. (Fides). The Rating Outlook remains Stable.
KEY RATING DRIVERS
Fides' 'Good Standards' rating reflects Fitch's opinion that the company's investment platform and operational framework are good relative to the standards applied by institutional investors in international markets.
The affirmation of the rating factors in Fides' experience as an independent asset manager in Brazil with a focus on equity strategies. It further reflects the experienced executive team and adequate control structure, systems and governance. The rating also benefits from the well-formalized investment process, supported by sound proprietary analyses, and fiduciary administration and custody services provided by well-known specialized companies, as BTG Pactual and Itau Unibanco groups.
Fides' major challenges include improving investment performance of its funds in a volatile environment amid increasing competition; diversification of its concentrated client base; and reduction of the key-person risk. In addition, the asset manager also faces the challenge continuing to invest in controls and systems to improve its operating processes.
The 'Good Standards' rating is based on the following assessments:
Company: Good
Controls: Good
Investments: Good
Operations: Good
Technology: Good
Company
Founded in 2002, Fides is an independent asset manager with focus on equity strategies. It follows a partnership model and had a total of 16 professionals in June 2014, eight of which being part of the investment team. The company has six partners, most of which are very experienced in the local market and include three founding partners, which provides strength to governance and stability at the executive level. Despite being lean, the structure is adequate for the volume of assets under management (AUM) and the number of investment strategies. Furthermore, Fides relies on the support of recognized companies specialized in fiduciary administration, compliance, risk controls and information technology. Fides has reported annual profits in all periods, benefiting from its low costs and high margins.
Fides has experienced volatility in AUM levels, as a result of low investment performance in its funds and redemption activity. AUM grew by 20% in 2013, but decreased by 28% in the first half of 2014 to BRL226 million in June 2014. The funds' performance has not been good since mid-2013, partly due to local economic turbulences.
Fides hired a new portfolio manager, Luis Gustavo Constantino, in 2014 who will also become a partner of the company though the partnership terms are yet to be defined. He became the Co-CIO and portfolio manager of the Fides Absoluto fund (former Total Return FIA), which had its strategy changed to long-biased, from long only. According to the manager, this fund had inflow of BRL40 million through October 2014.
In June 2014, around 57% of AUM belonged to the company's partners which provides some stability in AUM but also indicates that the company needs to increase its distribution activity to be successful in its growth plans. The company has attempted to increase its relationships with local pension funds to complement its distribution, which is largely concentrated on local distributors, such as family offices and third party funds of funds.
Controls
Fides' risk control structure is adequate with monthly risk committees and a good set of policies. Despite the lean team, the area relies on the support of systems provided by a specialized company in this segment, Risk Office Consultoria, and reports directly to an executive partner (COO) and to the risk committee.
Market and liquidity risk management is updated twice a day, with a good degree of automation and clear risk metrics. Fides' proprietary compliance controls use basic resources but are also carried out by well known fiduciary administrators, which, pursuant to local rules, also bear responsibility for this activity. Fund limit breaches have been low and promptly resolved.
Investments
Fides presents a well-structured investment process, with detailed strategies and focused on in-depth fundamental research of companies. Fides has good access to high quality reports from local and foreign brokerage houses. The CIO and the Co-CIO are highly experienced, drawing upon the support of an analytical team comprised of five professionals and a trader. Key-person risk is mitigated by the fact that the executives are partners and decisions are discussed in formal and regular committees.
The asset manager focuses on equity strategies in long & short funds (90% of the AUM in June 2014), long only and, since August 2014, long-biased. The long & short and long biased funds operate with medium and long-term strategies, in addition to arbitrage trades and strategies using options. The long & short has a gross exposure limit of 147% and net exposure of -5% and +5% over 90% of the time, while the long biased has a 220% exposure and between +30% and +70%, respectively. The long-only funds have up to 100% of the AUM in large and mid cap shares and up to 33% in small caps. Furthermore, they use arbitrage trades and strategies using options (up to 20% of the fund's net exposure).
Operations
Fiduciary administration and custody activities are carried out by well-known companies with solid asset pricing and NAV calculations daily. The asset manager's middle office area also conducts adequate reconciliation procedures to avoid operational failures. Operating procedures are very standardized, automated and integrated, despite presenting some manual interfaces.
Technology
Fides presents an appropriate IT structure, which meets company's needs with basic security and contingency resources, supported by a specialized company. Processes are carried out by worksheets (Excel VBA), relatively automated and integrated with external providers (distributors, brokerage houses and administrators). Critical databases for funds' assets and liabilities are also maintained by the fiduciary administrators. The manager is in the process of implementing a new proprietary front and middle office system, which should improve process automation and be concluded by early 2015.
COMPANY PROFILE
Founded in 2002, Fides is an independent asset manager specialized in equity strategies, with AUM of BRL226 million in June 2014. Established in Rio de Janeiro, it holds a partnership model with a total of 16 executives, six of these being partners, including three founding partners.
RATING SENSITIVITIES
Fides' rating could be sensitive to relevant adverse changes to any of the key drivers mentioned above, notably in case of a weakening in its financial profile, high executive turnover or deterioration in its processes and policies. A major deviation from Fitch's guidelines for any key driver could also lead to a rating downgrade.
To obtain additional information on Fitch's asset manager rating criteria, please refer to the criteria mentioned below, available at the agency's 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' (May 06, 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=912914
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