Fitch Upgrades RB Capital Asset Management to 'High Standards'; Outlook Revised to Stable

SAO PAULO--()--Fitch Ratings has upgraded RB Capital Asset Management Ltda.'s (RB Capital) International Scale Asset Manager Rating to 'High Standards' from 'Good Standards'. The Rating Outlook is revised to Stable from Positive.

KEY RATING DRIVERS

The upgrade of the Asset Manager Rating reflects the implementation of systems which improved risk controls and strengthened RB Capital's operating procedures. The 'High Standards' rating reflects Fitch's opinion that the manager's investment platform and operating framework are strong relative to the standards applied by international institutional investors in global markets.

RB Capital's rating factors in its well-formalized and consistent practices in its investment process, its solid risk and compliance controls, and segregated activities relative to fiduciary administration and custody that are in line with the strong local market practices. The asset manager rating benefits from the good corporate framework of the RB Capital Group, which carried out important investments in technology in 2014, focusing on process automation, which reduced the operational risk and increased business scalability.

RB Capital's rating only applies to its domestic real estate fund activities and does not apply to other business areas, such as the management of credit funds, fiduciary administration and custody, which have their own processes and policies.

In Fitch's opinion, RB Capital's key challenges are maintaining the consistent performance of its funds throughout the economic cycles and in a scenario of increasing interest rates, as well as preserving its reputation in the domestic real estate market, and reducing key-personnel risk.

RB Capital's 'High Standards' rating is based on the following assessments:

Company: Good

Controls: High

Investments: High

Operations: Good

Technology: to High from Good

RB Capital Asset Management is an experienced asset manager, primarily focused on managing real estate funds and a business in credit funds in the domestic market. It is a fully owned subsidiary of RB Capital Holding, a company that originates, structures, and distributes investment products focused on the Brazilian real estate market. The company's organizational structure is segregated from the other activities of the holding company, with good corporate governance and compliance policies. Despite being lean, RB Capital's control framework relies on well-planned processes and highly qualified and experienced professionals.

RB Capital Asset Management is one of the main business units of the holding company, accounting for approximately 10% of its earnings. The manager's growth has been underpinned by investments, mainly in technology, aimed at improving controls and operational processes.

During 2014, RB Capital reported a 31% growth in its assets under management (AUM). This increase resulted mainly from a new mandate for an exclusive fund and increase in investments allocated to the real estate market by two large institutional investors. The AUM profile is segmented into real estate funds (80%) and credit funds (20%). Investments in real estate funds follow three different strategies: income (50%), real estate development (25%) and construction financing (25%). As of December 2014, its investor profile included private and retail clients (27%), institutional (28%), public entities (23%), corporate (21%), and others (1%).

Controls

RB Capital relies on an independent and well-organized corporate risk and compliance framework with monthly committees following well-defined criteria and guidelines. The risk and compliance areas report directly to one of the holding company's partners. The asset manager maintains good operating risk controls, with low operating losses; well-formalized and documented compliance policies and procedures, in addition to adequate systems and policies to control market risk and the liquidity of its funds.

The manager maintains strong practices in its daily monitoring of real estate projects, with detailed monitoring of cash flows and robust processes to evaluate credit, execution and liquidity. Such controls were strengthened with the implementation of the Viabil system in 2014, which allowed efficiency and scale gains in project management. The funds have not reported relevant breaches during the last 12 months.

Investments

RB Capital's strong investment process relies on regular committees supported by sound financial, legal, environmental and market research for each project. The process is well-formalized, and carried out by qualified and experienced professionals. For each project, the investment process involves the following phases: origination of the deal; evaluation of the real estate developer, project and market; negotiation of the deal structure; investment committee; legal, financial and environmental due diligence; independent due diligence by a third party; ratification of the investment; and closing of the deal. Moreover, all the funds have clearly defined concentration limits, eligible assets and eligible structures defined in the term sheets. Some funds also include restrictions on tenant types. All the mandates have clearly defined strategies (income, real estate development and construction financing), with proven adherence in monthly reports.

RB Capital has an adequate investment structure, with 11 professionals dedicated to investments, including two portfolio managers, nine analysts (including the manager responsible for the area) to support the decisions linked to investments and the monitoring of portfolios, in addition to three professionals working in the middle office, back office and engineering areas. Although there is key-personnel risk and company's managers have a strong influence on the decision-making process, this risk is mitigated by the partnership model adopted by the company and by the investment committees, which serve as a forum for knowledge exchange on new investment opportunities and for evaluation of the existing portfolio.

Operations

The fiduciary administration and custody activities are carried out by renowned companies (being concentrated at Citibank and Banco Bradesco). The processes comply with the regulations and are supported by sound technological platforms. The middle office area carries out the daily reconciliation of project cash flows and the monthly monitoring of each project's current stage of development. RB Capital's middle office area is responsible for validating all pricing information. In 2014, the manager migrated the control of real estate funds which was conducted in Excel spreadsheets to a system (Viabil), which reduced the operational risk and increased its efficiency.

Technology

RB Capital relies on sound management processes, and risk and back office controls, which in 2014 started to be carried out through two new systems (the implementation of one of these should be concluded still in the first half of 2015). The manager made investments in technology to increase the efficiency and speed up its processes. These new platforms allow for stronger cash flow control, closer monitoring of risk metrics (Nave System - MAPS Solucoes e Servicos) and more automated and scalable project monitoring (Viabil System - BDK Solutions). It also relies on pre-trading and post-trading controls via Excel, which are also migrating to more customized and automated technological platforms. Contingency plans are well-structured, with back ups available for all critical systems, although without formal tests, currently.

Company Profile

RB Capital Asset Management, created in 2007, is an asset manager operating with the management of real estate and credit funds, with AUM of BRL2.7 billion as of December 2014 (BRL2.3 billion in the real estate market).

RATING SENSITIVITIES

RB Capital Asset Management's rating is sensitive to relevant adverse changes in any of the key drivers mentioned above, mainly a weakening of its financial profile, high professional turnover or deterioration in its processes and policies. An important deviation from Fitch's guidelines for any key-driver could also result in 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 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=981151

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