Fitch Affirms Perfin Administracao de Recursos at 'Good Standards'; Outlook Revised to Stable

SAO PAULO--()--Fitch Ratings has affirmed its International Scale Asset Manager Rating at 'Good Standards' for Perfin Administracao de Recursos Ltda. (Perfin). The Rating Outlook is revised to Stable from Positive.

KEY RATING DRIVERS

Perfin's rating reflects Fitch's opinion that the manager's investment platform and operational framework are good relative to the standards applied by international institutional investors in global markets.

The Rating Outlook revision to Stable from Positive reflects the significant decrease in Perfin's assets under management (AUM) which might affect its financial flexibility and capacity to retain its key professionals. Notwithstanding the company has managed to implement more robust systems, improving risk controls and enabling more automated and scalable operational procedures.

The rating factors in Perfin's experienced executive team, as well as its strong investment process which is supported by in-depth proprietary research. The rating also reflects an adequate control and governance structure, in addition to support services provided by well-known specialized companies.

Perfin's rating only applies to its local activities in Brazil and does not include its overseas operations and wealth management activities, which have their own processes and policies.

In Fitch's opinion, Perfin's key challenges are to stabilize the AUM on the asset management business, improving the performance of its funds against a backdrop of high volatility and strong competition, executing on the process of diversification of its investor base and consolidate the improvements of its new technological platform with an aim at refining its controls so as to support the projected growth of its AUM.

Perfin's 'Good Standards' rating is based on the following assessments:

--Company: Good

--Controls: Good

--Investments: High

--Operations: Good

--Technology: High, from Good

Company

Founded in 2007, Perfin is an independent asset manager, specialized in equities in long only and long & short strategies. It is structured as a partnership model with a total of 14 professionals and a three-member consulting board. In addition to the asset management business, Perfin also maintains a segregated wealth management business with six professionals. The CEO/CIO and the COO/CRO, founders of the company, and the Head of Research maintain a controlling ownership stake, while another 12 partners (four of them being part of the wealth management area) reinforce the governance and stability of the executives.

As of March 2016, Perfin reported AUM of BRL310 million with an approximately 76% decrease since its peak in December 2013. Perfin's client breakdown is: private banking (40%), distribution firms (39%), institutional (12%), foreign investors (1%), retail (5%) and others (3%). The long only funds accounted for 42% of the AUM, while the other 58% are allocated to the long & short strategy. The decrease in AUM during the last two years is mostly explained by the underperformance in the last 24 months in comparison to its peer group and by the migration of assets to more conservative fixed income products observed in the Brazilian funds industry.

The wealth management unit has increased its AUM and recently became more relevant to the results of the group, compensating the decreasing results of the asset management unit. In 2013, the results were split between asset management (82%) and wealth management (18%) while in 2015 the split was of: asset management (35%) and wealth management (65%). Fitch believes that the firm's overall structure is adequate given the current level of AUM and investment strategies.

Controls

Perfin monitors market risks and liquidity in all its portfolios and funds on a daily basis. The company also uses proprietary compliance controls, with automated pre and post trading procedures for all the funds. A complete and integrated systems solution was implemented (Eze Software), in September 2015, including a module to pre trading activities. The trading module considers the main regulatory and managerial rules with still more alerts to be implemented. The new solution also includes the monitoring of funds liabilities enhancing the controls of liquidity metrics and AUM client concentration.

Perfin decided to migrate its fund administration services from BTG Pactual to another provider and choose BEM DTVM, which is part of Banco Bradesco (one of the largest financial groups in Brazil). The migration process is taking longer than expected due to further delays of both administrators conducting the processes. With these delays, some of the controls enhancements expected with the new systems are on hold until the full migration of the funds (expected to be finished in July 2016).

Fitch considers Perfin's risk management structure to be adequate, relying on daily risk reports and satisfactory controls and policies. The control area reports to the COO/CRO, one of Perfin's two major partners; this ensures that the control area maintains an adequate level of influence within the firm. There is no segregated operational risk framework, but this is offset by the work flow and daily reconciliations. There have been no operating losses in the last 12 months. In addition, fund limit breaches have been low and promptly resolved.

Investments

The investment process is based on a bottom-up fundamentalist approach, following long only and long & short strategies. Perfin manages two types of long & short strategies both of which are not market neutral and differ between themselves by the level of risk they assume. The lower risk fund maintains between 40%-60% of gross exposure and 10%-20% of net exposure, whereas the higher risk fund maintains between 80%-120% gross exposure and 20%-40% net exposure. Fitch's considers Perfin's investment process to be well-structured, with detailed strategies supported by strong proprietary bottom-up analysis. Additionally, the investment team, which consists of one CEO/CIO, one Head of Research, four analysts and one trader, is adequate for the number of strategies managed by the firm. After the departure of a senior analyst, Perfin hired another senior professional to its research team, also as a partner. Paulo Ghedini has around 15 years of experience in equity research with a good track record in Latam Equities. Key personnel risk is mitigated by the fact that most of the executives are partners and decisions are discussed in formal and regular committees, though Fitch notes that there is a concentration of decision making in the two portfolio managers.

Operations

Fiduciary administration and custody activities are carried out by BTG Pactual and BNY Mellon. Perfin is migrating its fund administration and custody services to another provider (BEM DTVM - Bradesco). All these providers are well-known institutions with solid asset pricing and daily net asset value (NAV) calculations. The asset manager's middle office area also conducts the entire reconciliation with standardized procedures. The new systems provided considerable improvements in automation and scalability within the daily routines.

Technology

Perfin has a strong IT structure, relying on a very good risk control system and on the support of a specialized company. The asset manager has implemented a new and complete solution provided by a well-recognized vendor (Eze Software). The system implemented delivers a straight-through process solution, decreasing the operational risk and increasing scalability and efficiency. Also, the new solution provides a broad range of new features to support the investment process. Following the developments described above, Fitch has upgraded the Technology pillar to 'High' from 'Good'.

The processes are automated and integrated with the systems of external service providers, such as those of the fiduciary administrator and brokerage houses. Moreover, critical databases for funds' assets and liabilities are also maintained by the fiduciary administrators. Safety and contingency back up resources are adequate.

Company Profile

Perfin, founded in 2007, is an independent asset manager focused on equities, with AUM of BRL310 million, as of March 2016. The AM has a partnership model with 13 professionals.

RATING SENSITIVITIES

Perfin's rating could be sensitive to important adverse changes in any of the key drivers mentioned above, notably a weakening in its financial profile, high turnover of executives or deterioration in its processes and policies. Furthermore, it will be important for Perfin to improve the performance in a difficult investment environment and to consolidate its improvements on the IT systems. 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, 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

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=1008271

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
+55-11-4504-2606
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
Committee Chairperson
Davie R. Rodriguez, CFA
Senior Director
+1-212-908-0386
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Tiago Carrara
Associate 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
Committee Chairperson
Davie R. Rodriguez, CFA
Senior Director
+1-212-908-0386
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com