Fitch Affirms J. Safra Asset Management Ltda.'s Rating at 'Highest Standards'

SAO PAULO & RIO DE JANEIRO--()--Fitch Ratings has affirmed the International Scale Asset Manager Rating at 'Highest Standards' for J. Safra Asset Management Ltda. (J. Safra Asset). The Rating Outlook remains Stable.

KEY RATING DRIVERS

The 'Highest Standards' rating for J. Safra Asset reflects Fitch's view that the company's investment platform and operating framework are superior relative to the standards applied by international institutional investors.

The rating affirmation of J. Safra Asset reflects its well-formalized and consistent practices for investment process, risk controls and compliance, in addition to its robust and segregated structures for fiduciary administration and custody, in line with the best practices in the market. The rating also benefits from the solid franchise of the parent, Banco Safra S.A. (Banco Safra; Issuer Default Rating [IDR] 'BBB'/Outlook Stable), the fifth largest private financial conglomerate in Brazil, from the company's continuous investments in technology, satisfactory distribution channels and corporate structure of the group.

J. Safra Asset's rating applies to its Brazilian domiciled investment activities and does not include offshore, private banking, wealth management, fund of funds, real estate funds, fiduciary administration and custody operations. Those areas have their own processes and policies, which are segregated from the traditional fund management.

Fitch believes that J. Safra Asset's main challenges are: to increase its participation in higher value added funds, in the face of stronger competition; to keep a competitive edge using a lean investment personnel structure and to sustain a consistent performance mainly in the multimarket funds class.

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

Company: Highest

Controls: Highest

Investments: Highest

Operations: Highest

Technology: High

Company

J. Safra Asset is the ninth largest asset manager in Brazil, with a focus on fixed income and multimarket funds, and significant experience in the local market. It is a part of a solid Brazilian financial conglomerate, is widely diversified and profitable, and is part of a retail and private bank structure in Brazil with a very good distribution network and client base. Its organizational structure has been fully segregated from Safra group's other activities since 2012, with a strong corporate governance and compliance policy. The asset manager is well-segmented, with well-established processes and qualified and experienced professionals.

The AUM has increased from BRL25 billion in 2008 to BRL43.6 billion in September 2014, but exhibited some volatility in 2012 and 2013 and remained stable since the beginning of the year. The AUM volatility was related to very specific corporate clients managed through dedicated funds, driven by competitive performance-based mandates which are susceptible to cash flow management of the companies that invested in the funds. Despite the recent stability in AUM, there has been a slight change in the composition of the investor profiles. In 2014, corporate clients continued to present a decrease of its participation in relation to total AUM (from 33% in 2013 to 26% in September 2014), which was offset primarily by the increase from private banking (from 18% in 2013 to 22% in September 2014) and retail (from 18% in 2013 to 20% in September 2014), while open pension funds (9%), closed pension funds (6%), and others (16%) remained roughly stable.

The AUM profile in September 2014 followed the higher investor demand for fixed income funds (45%) and the asset manager's strategy to focus in multimarket funds (42%) while equity funds represented (1%) and others (12%). The decrease of investors' appetite for risk was reflected in the slight increase in fixed income funds in detriment of equity funds. J. Safra Asset management's flagship multimarket strategy saw an increase in AUM during 2014 despite some performance volatility.

Controls

J Safra Asset relies on a strong and independent risk and compliance structure alongside an internal auditor's area, all of which are a part of the Banco Safra's corporate structure. The asset manager presents robust market and liquidity risk controls, adequate operating risk controls with no reported operating losses in 2014, and well-formalized and documented compliance policies. Limit breaches have been low and promptly addressed.

Investments

J. Safra Asset maintains a robust investment process, based on committees supported by solid macroeconomic and fundamentalist research. The process is well-formalized and has provided a top-down scenario and an asset allocation input for all the investment mandates. Portfolio managers have some autonomy in their decisions but must follow the committee guidelines. The equities team hasn't presented relevant staff turnover in last 12 months, beneficiating from staff stability after a past team restructuring.

Operations

J.Safra Asset provides a very good overall communication with proper adherence to all asset management disclosure obligations made by CVM and Anbima and specialized relationship managers for each customer segment.

Similar to other large bank-affiliated asset managers in Brazil, the fiduciary administration and custody activities are carried out by another business unit of the group. The processes observe regulations and local best practices, supported by suitable technological platforms and a robust corporate structure, with good process automation. In addition, the middle office and market risk areas carry out the reconciliation of the whole operating process, including the trading activity.

Technology

J. Safra Asset Management relies on solid risk controls and automated and integrated systems, in addition to the robust structure and technological platform of Banco Safra. The asset manager has made adequate investments in systems and controls to improve the efficiency and agility of the processes. In 2013, it has implemented a front office system for equity trading and it is assessing solutions for fixed income securities. The implementation of the aforementioned platform enables higher speed and better controls, as well as pre-trading blocks and alerts, among other benefits.

COMPANY PROFILE

The Safra group has operated in asset management activities since 1980. J. Safra Asset Management is the ninth largest asset manager in Brazil, with AUM of BRL43.6 billion and 1.7% of market share in September 2014, according to the Brazilian Association of Financial and Capital Market Entities (Anbima). The company is responsible for the third party asset management of Banco Safra S.A., ranked as fifth private bank in the country in terms of assets.

RATING SENSITIVITIES

J. Safra Asset's rating could be sensitive to adverse changes to any of the key drivers mentioned above, notably a weakening in its financial profile, high turnover of professionals or deterioration in its processes and policies. An important deviation from Fitch's guidelines for any key driver could result in a rating downgrade.

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'.

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=936135

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Contacts

Fitch Ratings
Primary analyst
Alexandre Yamashiro, CAIA
Director
+55-11-4504-2606
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor - Cerqueira Cesar
Sao Paulo - SP - CEP: 01418-100
or
Secondary 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, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary analyst
Alexandre Yamashiro, CAIA
Director
+55-11-4504-2606
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor - Cerqueira Cesar
Sao Paulo - SP - CEP: 01418-100
or
Secondary 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, +1 212-908-0526
elizabeth.fogerty@fitchratings.com