Fitch Affirms Vinci Equities' Asset Manager Rating at High Standards

SAO PAULO--()--Fitch Ratings has affirmed the International Scale Asset Manager Rating for Vinci Equities Gestora de Recursos Ltda. (Vinci Equities) at 'High Standards'. The Rating Outlook is Stable.

KEY RATING DRIVERS

The 'High Standards' rating assigned to Vinci Equities reflects Fitch's opinion that the investment platform and operational framework of the asset manager are strong relative to the standards applied by institutional investors in international markets.

The rating of the asset manager reflects the benefits of being part of Vinci Partners Investimentos group (Vinci), its parent company, a midsize financial group in Brazil. Vinci Equities' rating factors in its experienced executive team, the firm's financial stability, a well-established and disciplined investment process as well as the group's solid operational and technological support. The rating also reflects strong control and governance structures.

Vinci Equities asset manager's rating applies to its activities in the local market and does not contemplate the group's other asset management units and wealth management platforms all of which have their own processes and policies.

In Fitch's opinion, Vinci Equities' main challenges consist of maintaining the performance of its funds above benchmarks in a scenario of high volatility and strong competition, reduce key-personnel risk and increase diversification of its investor base.

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

Company: High

Controls: High

Investments: High

Operations: High

Technology: High

Company

Established in 2009, Vinci Equities is a subsidiary of the Vinci Partners group, which operates in different segments of the capital market through its business units: asset management, wealth management, private equity and financial advisory (M&A and capital markets).

Vinci group is controlled by three main shareholders, which participate in its board of directors, among other minority partners (including two executives from Vinci Equities). Vinci group operates five asset managers, each firm focusing in a different type of strategy (including a real estate asset manager). As of September 2015, the group reported total assets under management (AUM) of BRL19 billion. Vinci Equities is the manager specialized in equities strategies with an emphasis on value strategies.

Vinci Equities is structured to mainly focus on portfolio management while the group is responsible for risk, controls, operations and technology activities in order to reduce costs, promote specialization and improve efficiency. The group of executives of the asset manager is composed of a Head of Equities and a Head of Research (which also accumulates PM responsibilities). Fitch believes that the firm's overall structure is adequate given the current level of AUM as well as the number and complexity of investment strategies.

As of September 2015, Vinci Equities reported AUM of BRL3.4 billion, with the following client profile: private banking (49%), pension funds (28%), funds of funds (22%) and others (1%). Vinci Equities' AUM suffered a 19% reduction until September 2015 against period ended in 2014. The decline in AUM was due to the negative performance of the Brazilian stock market and reallocation of investors' funds, which reduced their equities positions due to uncertainties in the Brazilian macroeconomic scenario. The asset manager focuses on equities (mainly value strategies and small caps stocks), which can be attested by the AUM distribution relative to the fund types: long only value (41%), dividends strategy (38%) and small caps (21%). Exclusive mandates respond for half of the AUM, while the remainder is managed through open-ended investment funds. The mandates presented good performance, as compared to benchmarks and peers, especially in the dividend strategy. However, the performance of the Brazilian equities market was below of other asset classes in the last 12 months, which negatively impacted the performance of the asset manager.

Controls

Fitch considers Vinci Equities' independent asset management structure strong, relying on weekly reports, with robust market risk controls. In 2015, the manager automated its liquidity controls and integrated them to its proprietary market risk system (Veritas), which made the process more efficient. The control and risk management areas are part of the Vinci group structure thus providing a very good oversight of all the exposures and limits of the funds. There is a segregated operational risk structure (also part of the group), which has a solid mapping of the workflows, reporting of errors and losses. There have been no relevant operating losses in the last 24 months.

The asset manager also uses pre-trading compliance proprietary controls, but is implementing a more robust system (supplied by Eze Castle), which should improve efficiency of the controls and the degree of automation. Fitch considers these controls very good and suitable for the current number of funds and strategies and believes that the implementation of the new system will be beneficial for the asset manager. Fund limit breaches have been low and promptly resolved.

Investments

Vinci Equities' investment process is based on a bottom up approach, primarily focusing on value strategies. Fitch considers the investment process to be well-structured, with detailed strategies adapted to the limits and rules of each mandate. The firm has access to high quality reports from local and foreign brokerage houses to further support its analysis. Its investment team is composed of qualified and experienced professionals and consists of: one Head of Equities, one Head of Research (which also has PM responsibilities), two portfolio managers, eight analysts and two traders. Key personnel risk exists due to concentration of responsibilities for the portfolio management and investment research activities on the Head of Research/PM. This risk is mitigated by decisions being discussed and made in formal and regular committees.

Operations

Vinci Equities provides a high level of transparency and communication materials to its investors, while adhering to all the disclosure requirements of the Brazilian Securities and Exchange Commission (CVM) and the Brazilian Association of Entities of the Financial and Capital Markets (Anbima). The fiduciary administration and custody activities are mostly provided by Bradesco and Caixa Economica Federal. The reconciliation of most operational procedures is carried out by the back office area through Excel worksheets with VBA programming and through a system provided by a third party (SGI). These processes carried out by the middle and back office areas are standardized and well-integrated to the platforms of the external service providers.

Technology

Vinci Equities has a strong IT structure and relies on a very good risk control system (Veritas - an internally developed system), in addition to the support of Vinci group's IT team. The group has permanently invested in technology, in order to automate its processes and ensure the quality and consistency of its databases. In 2015, it started to implement a new pre-trading compliance and order management system (Eze Castle), which should improve the automation of its processes, the efficiency of its controls and the integration with the other technological platforms used by the asset manager. Safety and contingency back up resources are strong and provide a very good level of service. In 2015, the asset manager started to carry out system's contingency tests, under the supervision of the operational risk area.

Company Profile

Vinci Equities, founded in 2009, is an asset manager focused on equities, with AUM of BRL3.4 billion, as of September 2015. Incorporated in Sao Paulo (SP), it is a subsidiary of Vinci Partners Investimentos Ltda.

RATING SENSITIVITIES

Vinci Equities' rating can be sensitive to relevant adverse changes to any of the major fundamentals mentioned above, such as weakening of its financial profile, high professional turnover or deterioration in its processes and policies. Furthermore, Vinci Equities is currently the defendant in a CVM proceeding that could adversely affect its reputation and financial results in the event of a negative outcome, which could severely impact its franchise and cause a multiple notch downgrade in its asset manager rating. It will be also important for Vinci Equities to develop investment structure, systems and controls further, to be more scalable should the firm seek to add new strategies or if AUM materially increases. A major deviation from Fitch guidelines in relation to any key factors can lead to a rating downgrade.

To obtain additional information on Fitch's asset manager rating criteria, please refer to the criteria mentioned below, available on the agency's websites at 'www.fitchratings.com' or 'www.fitchratings.com.br'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Asset Manager Rating Criteria (pub. 06 May 2014)

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

Relatório de Metodologia: Análise e Rating de Gestores de Recursos (pub. 04 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873367

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996685

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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
Pedro Gomes
Director
+55-11-4504-2604
or
Tertiary analyst
Tiago Carrara
Senior analyst
+55-11-4504-2217
or
Committee Chairperson
Davie R. Rodriguez, CFA
Senior director
+1-212-908-0386
or
Media Relations:
Jaqueline Carvalho, Rio de Janeiro, +55 21 4503 2623
Email: jaqueline.carvalho@fitchratings.com
Elizabeth Fogerty, New York, +1 212-908-0526
Email: 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
Pedro Gomes
Director
+55-11-4504-2604
or
Tertiary analyst
Tiago Carrara
Senior analyst
+55-11-4504-2217
or
Committee Chairperson
Davie R. Rodriguez, CFA
Senior director
+1-212-908-0386
or
Media Relations:
Jaqueline Carvalho, Rio de Janeiro, +55 21 4503 2623
Email: jaqueline.carvalho@fitchratings.com
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com