Fitch Affirms J. Safra Asset Management's Ratings at 'Highest Standards'; Outlook Stable

SAO PAULO--()--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 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 Negative), the sixth largest private financial conglomerate in Brazil, from the company's continuous investments in technology, satisfactory distribution channels and corporate structure of the group.

The 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 consolidate 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 eighth largest asset manager in Brazil, with a focus on fixed income and multimarket funds, and has significant experience in the local market. It is a member 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. In October 2015, Marcio Appel, the CEO of J. Safra Asset Management, left the company for personal reasons. Luiz Fabiano Godoi, the current CIO, will also assume the role of CEO. This will reflect a new organizational structure and it is possible that some minor adjustments might be made in the future.

Assets under management (AUM) has increased from BRL25 billion in 2008 to BRL58.4 billion in October 2015, exhibited some volatility between 2012 and 2014 but increased again this year. The AUM growth was due to the good overall performance of the funds managed by J. Safra, even with tough market conditions for the Brazilian fund industry. There has been a slight change in the composition of the investor profiles since 2013. In September 2015, the corporate clients group continued to present a decrease of its participation in relation to total AUM (from 11% in 2013 to 3%), which was offset primarily by the increase from third party distributors (from 7% in 2013 to 15%) and retail (from 33% in 2013 to 37%), while pension funds (14%), private (28%) and others (3%) remained roughly stable.

The AUM profile in September 2015 followed the still high investor demand for fixed income funds (48%) and the asset manager's strategy to focus on multimarket funds (43%) while equity funds represented (1%) and others (9%). Even with a decrease of investors' appetite for risk, the good performance of its flagship fund (Safra Galileo) was reflected in the increase of AUM throughout 2015.

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 2015, 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 fundamental research. The process is well-formalized and has provides 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 has not seen relevant staff turnover in last 12 months, benefitting from staff stability after a past team restructuring. Also, J. Safra Asset increased the equities team staff, hiring two senior personnel dedicated to a Long- and Short-fund, which reinforces the company's strategy to invest in value-added products.

Operations

J.Safra Asset provides very good overall communication with proper adherence to all asset management disclosure obligations made by CVM and the Brazilian Association of Financial and Capital Market Entities (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. J. Safra Asset Management has implemented a front-office system for equity trading and 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 eighth largest asset manager in Brazil, with AUM of BRL58.3 billion and 2.0% market share in October 2015, according to Anbima. The company is responsible for the third-party asset management of Banco Safra S.A., ranked as the sixth 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 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

Relatorio de Metodologia: Analise 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=996686

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Tiago Carrara
Associate Director
+55-11-4504-2217
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
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
Tiago Carrara
Associate Director
+55-11-4504-2217
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
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