Fitch Affirms Fator Administracao de Recursos' Rating at 'High Standards'
KEY RATING DRIVERS
The 'High Standards' rating assigned to FAR 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 affirmation of FAR rating reflects its well-formalized and consistent practices for the investment process, strong risk controls and compliance, its segregated structures for fiduciary administration and custody, which are in line with the market good practices. The rating also benefits from the corporate structure of Banco Fator SA. (Fator, LT National Rating 'BBB(bra)' / Outlook Negative), from FAR's continuous investments in technology and satisfactory distribution channels.
The asset manager's rating applies to its activities in the local market and does not contemplate offshore private banking, fiduciary administration and custody operations. All these activities have their own processes and policies, which are segregated from the traditional fund management.
Fitch believes that FAR's main challenges are: to maintain its competitive advantage with a lean team, while it reorganizes its activities to increase profitability and recover the consistent performance of its funds, mainly in value added products (closed-end stock funds).
The 'High Standards' rating is based on the following assessments:
Fator Administracao de Recursos is an asset manager with focus on equities and multimarket funds with significant experience in the local market. It is a wholly owned subsidiary of Banco Fator, with a track record in equity research, mainly in mid- and small-cap companies listed on BM&F Bovespa. Its organizational structure is segregated from the other activities of Banco Fator, with good corporate governance and compliance policies. Its structure is lean, with well-established processes and qualified and seasoned professionals.
Banco Fator and FAR have undergone a significant restructuring process since 2011, with many changes to its executives, including the bank's CEO, FAR's CEO and the group's CRO. The changes were implemented as part of an effort aimed at balancing revenues between the business areas on a more consistent and profitable basis. The group reported losses in the last two periods disclosed (until June 2014), as did FAR. The majority shareholder has demonstrated commitment to the group with recent financial support, which partially mitigates short term concerns related to negative financial performance.
Assets under management (AUM), BRL3.5 billion in September 2014 (also taking into account the volume in managed accounts) showed a relevant reduction, as compared to September 2013 (-10%), due to the transfer to Banco Fator of an institutional fund of funds mandate, in addition to a decrease of the value of assets, especially of equities securities. Despite this relevant decline in the assets under management, the impact on the manager's cash flow generation was minimal. As of September 2014, the investor profile comprised pension funds (62%), corporate/institutional (8%), insurance companies (6%), private banking (5%) and others (19%).
AUM profile is concentrated on strategies in which the asset manager has acknowledged expertise, with 23% allocated to equity funds, 23% to fixed income funds, 45% to multimarket funds and 9% to others.
FAR relies on independent and well-organized corporate risk and compliance structures, following well-defined methodologies and guidelines. The asset manager has strong operational risk controls, with low operating losses, well-formalized and documented compliance policies and procedures, as well as solid systems and policies for market risk and liquidity control. Limit mismatches have been low and promptly solved.
The asset manager presents a solid investment process, based on committees supported by sound fundamentalist and quantitative macroeconomic analyses. The process is well-formalized, being carried out by qualified and experienced professionals. Although managers enjoy a certain autonomy in their decisions, all committee guidelines must be complied with. In mid-2013 FAR CEO/CIO was changed, when Patricia Stierli left (to another business unit of the group) and Fabio Moser (Fator's former investment bank director).
In 2014, FAR made new adjustments to its organizational structure and brought an experienced manager (Alexandre Waltz) from another business unit of the Fator group to lead the investment process of closed-end equities funds (Sinergia family), as well as two executives also from the Fator group to be responsible for real estate and private equity funds. The manager is also carrying out a rationalization of its product offering, with the aim to prioritize efforts and resources where it enjoys higher expertise and closing funds with overlapped mandates, thus seeking to reposition the Fator brand in the Brazilian asset management industry.
Fiduciary administration activities are carried out by another business unit of the group, in similar fashion to other asset managers linked to banks in Brazil. Asset custody is carried out by renowned companies of the sector, such as Itau Unibanco group. The processes comply with the regulations and are supported by adequate technological platforms, with a good level of automation. Furthermore, the corporate middle office area, which is segregated from the asset manager, performs daily reconciliation of the whole operational process, including the trading activity, NAV calculation and fund's cash flow.
FAR maintains on adequate management, risk control and automated back office systems, in addition to benefiting from the good structure and technological structure of Banco Fator. The asset manager has made investments in technology to improve the efficiency and agility of the processes. Besides its risk control and post-trading compliance systems, it has almost fully implemented an internally developed platform with pre-trading and performance attribution resources.
FAR is an asset manager created in 1997, with AUM of BRL3.5 billion. The company is responsible for the third-party asset management activities of Banco Fator S.A.
Fator Administracao de Recursos' rating is sensitive to relevant adverse changes to any of its above mentioned major fundamentals, mainly in case of weakening of its financial profile, high professional turnover or deterioration in its processes and policies. A relevant deviation from Fitch's guidelines for any key-factor could also result in a rating downgrade.
For further information on Fitch's asset manager rating analysis, please refer to the methodologies mentioned below, which are available at the agency's websites, at 'www.fitchratings.com' or 'www.fitchratings.com.br'.