Fitch Affirms Itau Asset Management's Ratings at 'Highest Standard'; Outlook Stable

SAO PAULO--()--Fitch Ratings affirmed the International Scale Asset Manager Rating at 'Highest Standards' for Itau Asset Management (IAM). The Rating Outlook remains Stable.

KEY RATING DRIVERS

IAM's 'Highest Standards' rating reflects Fitch's opinion that the manager's investment platform and operational framework are superior relative to the standards applied by institutional investors in international markets.

The rating factors in its continued market leadership position in different investor segments, its ample and diversified client base, the large distribution channels, robust revenue generation and the high quality of its executive team. The assessment further reflects the well-established and disciplined investment process, strict risk and compliance policies, and strong investments in technology and controls. IAM's rating also benefits from the manager being part of Itau Unibanco Holding S.A. group (IUH; local currency Issuer Default Rating [IDR] 'BBB'/Outlook Negative), the largest private financial conglomerate in Brazil and Latin America.

The asset manager's rating applies only to its activities in the domestic market and does not include its overseas funds, fund of funds management and private banking activities. It does not consider other group companies, such as Intrag DTVM, which offers fiduciary administration and custody services to institutional clients, and Kinea Investimentos Ltda., dedicated to the management of alternative investments. All these operations have their own processes and policies, segregated from the management of traditional funds.

Fitch believes that IAM's main challenges are: maintaining the performance of its funds at levels adequate to their risk levels in a challenging economic environment; the successful implementation of its overseas expansion plans, while maintaining its profitability levels given the strong competition from other managers in an extremely competitive environment.

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

Company: Highest Standards

Controls: Highest Standards

Investments: Highest Standards

Operations: Highest Standards

Technology: Highest Standards

Company

IAM is part of a solid, diversified, and profitable financial conglomerate. IAM remains as the largest private asset manager in Brazil with substantial experience in different asset classes and strategies. It is a business unit totally segregated from the Itau Unibanco group's other activities, and relies on a strong corporate governance policy. The asset manager relies on well-established processes and highly qualified seasoned professionals.

On Nov. 3, Itau Asset Management announced a change in its leadership. The CEO Gustavo Murgel left the institution, and he was replaced by Marcello Siniscalchi, who continues to hold the position of CIO, and Fernando Beyruti, who was formerly responsible for the Securities Services unit. Fitch believes that this change will not have material impact on the asset manager, as Marcello and Fernando are seasoned executives of the group, which have contributed to position Itau as one of the top asset managers in Brazil. In addition, these changes are not expected to lead to profound modifications in the policies and processes of the asset manager.

Despite assets under management (AUM) growth having been below the industry's in recent years, AUM growth was relevant during the first semester of 2015 (9.3%). IAM's AUM profile is concentrated on fixed income funds at 56% of AUM in June 2015, including private pension funds. Multimarket funds account for 11% of AUM. The investment strategies have reported a good performance, most of which posted performance above benchmarks during the last 36 month period ended in June 2015.

IAM's strategy and main challenge is to achieve greater global positioning, in order to diversify its businesses from a consolidated local presence. The asset manager has made significant investments in platforms for overseas distribution, product offerings and global-standard systems. However, the volume of foreign investors has been declining since 2011, to BRL15 billion in June 2015, due to turbulences in the local economy.

Controls

IAM's risk and compliance management is supported by the group's robust and independent corporate organizational structure, characterized by strong governance. Funds have not reported relevant breaches of their market and liquidity risk limits, and when these happen they are promptly solved. Operational losses have been low as compared to the AUM. IAM is in the final stage of implementing a new market risk system (Sophis) which should improve the efficiency and quality of its processes and reduce the operational risks, among other benefits.

Investments

Fitch considers that IAM's investment structure to be one of the more robust in the Brazilian asset management space. The investment team comprises very experienced professionals, segmented into four divisions: beta (indexed funds and ETFs), alpha (fixed income and equity funds), high alpha (total return funds) and portfolio solutions (asset allocation mandates for institutional clients). The process is well-formalized and segmented, including a centralized trading area (except for high alpha funds), and relying on strong macroeconomic, fundamentalist and quantitative research resources. The team enjoys the support of the risk control area and sophisticated systems, which perform pre-trading alerts and order management. There were no major changes to the investment process last year.

Operations

The fiduciary administration and custody activities are carried out by another business unit of the group as with other large asset managers linked to financial groups in Brazil. This unit is well-known in its business segment for providing services to other asset managers in the local market. The processes observe regulations and best practices, being supported by safe and robust technological platforms and by an experienced team. The processes are automated, with only a few manual interventions and offer an advanced degree of quality control through indicators that monitor the services provided.

Technology

Itau Unibanco group relies on a robust technological area and solid technological platform that supports IAM with strong management systems, risk controls and an automated and integrated back office. IAM reports high investments in systems and controls, which are constantly improving. The manager implemented a renowned front and middle-office system (Charles River) and is concluding the implementation of a market risk control system (Sophis) that should enable greater integration of these activities, as well as an increased degree of automation, efficiency and quality.

Company Profile

With more than 50 years of experience (its first fund was launched in 1957), IAM is the second largest asset manager in Brazil, with 15.8% market share and AUM of BRL403 billion in June 2015, according to the Brazilian Association of Financial and Capital Markets Entities (Anbima). IAM is a business unit of IUH, the largest private financial conglomerate in Brazil and one of the largest in Latin America.

RATING SENSITIVITIES

IAM ratings could be sensitive to relevant adverse changes to any of the above mentioned key rating drivers, mainly in case of 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-factor could lead to a rating downgrade.

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

Additional information is available at '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=993999

Endorsement Policy

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

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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
Tiago Carrara
Senior analyst
+55-11-4504-2217
or
Committee Chairperson
Davie R. Rodriguez, CFA
Senior Director
+1-212-908-0386
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@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
Tiago Carrara
Senior analyst
+55-11-4504-2217
or
Committee Chairperson
Davie R. Rodriguez, CFA
Senior Director
+1-212-908-0386
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com