Fitch Affirms Bancoob DTVM Ltda.'s Rating at 'Good Standards'
Key Rating Drivers
Bancoob DTVM's 'Good Standards' rating reflects Fitch's opinion that the investment platform and operational framework of the asset manager are good relative to the standards applied by institutional investors in international markets.
The affirmation of this asset manager's rating reflects the benefits of being part of Banco Cooperativo do Brasil S.A. (Bancoob; Long-Term National Scale rating 'AA-(bra)';Outlook Stable), its parent company. The rating also factors in its experienced executive team, strong assets under management (AUM) growth, adequate control and governance framework, as well as the group's technological support.
Bancoob DTVM's rating applies only to its activities in the domestic market and does not include the group's fiduciary administration activities, which rely on their own processes and policies.
In Fitch's opinion, Bancoob DTVM's main challenges are to reduce key-personnel risk, improve the segregation of functions between portfolio management and operations, and diversify its investor base, besides integrating its technological platforms.
The 'Good Standards' rating is based on the following category assessments:
Founded in 2005 as a subsidiary of Bancoob, the asset manager is specialized in fixed income strategies and focused on providing investment solutions to the associates of single- and central-credit cooperatives that participate in the Sistema de Cooperativas de Credito do Brasil (Sicoob) and others. Bancoob is owned by central and single coops that are part of the Sicoob system, which is the largest credit cooperative system in Brazil, the 8th largest financial institution by deposits and the 13th by assets.
Bancoob DTVM is structured to focus mainly on portfolio management and draws support from the group in such areas as controls, operations, legal, risk management and technology. Fitch believes that the firm's overall structure is adequate, given the current level of AUM as well as the number and complexity of investment strategies.
Fiduciary administration is also carried out by the asset manager but the controllership and custody of funds are conducted by Bancoob, which reduces the possible conflicts of interest and provides adequate segregation. However, in our view additional separation of the fiduciary administration functions would better serve the operational standards expected by international institutional investors.
As of June 2015, Bancoob DTVM reported AUM of BRL7.9 billion with the following client profile: coops (97%) and others (3%). The asset manager's AUM has grown significantly since 2009, growing 59% in 2014, well above the industry average, following the strategy to provide services to a larger number of cooperatives. The asset manager focuses on fixed income strategies (credit and sovereign bonds) with the following AUM distribution: fixed income (93%) and multimarket funds (7%). Managed portfolios account for 70% of the AUM, while the other 30% is managed by investment funds. The performance of the portfolios has been in line with their target return and with investors' expectations.
Fitch considers Bancoob DTVM's independent risk management structure to be solid, relying on daily risk reports, good controls for market risk and strong controls on liquidity and credit risk. There is a segregated operational risk structure, which has an suitable mapping of the workflow, reporting errors and losses. There have been no operating losses in the last 36 months.
Bancoob DTVM also uses proprietary post-trading compliance controls, which are monitored with macro-programmed Excel spreadsheets. Fitch considers these controls adequate for the current number of funds and strategies. Fund limit breaches have been low and promptly resolved.
Fitch considers the investment team, composed of one CIO, one manager, one trader and one analyst, adequate for the small number of strategies managed by Bancoob DTVM. Key-personnel risk exists because responsibility for portfolio management activities is concentrated on the CIO. This risk is mitigated by the fact that the decisions are discussed and formalized in regular committees with the participation of the directors and the entire investment team.
The investment process is based on a top-down approach, primarily focusing on low-volatility-credit fixed income strategies. Fitch considers Bancoob DTVM's investment process to be well-structured, with detailed strategies and limits. The asset manager lacks a group of analysts to provide in-house research for macroeconomic topics and utilizes the credit research team of Bancoob for evaluation of corporate and structured debt securities.
Controllership and custody of funds are carried out by Bancoob's departments, a common feature of asset managers linked to financial institutions in Brazil, with solid asset pricing and daily net asset value (NAV) calculations. The middle and back-office areas conduct the reconciliation of all the key processes using Excel spreadsheets with VBA programming. In 2015, a system was implemented to more efficiently and safely manage electronic documents, which made a few processes more scalable.
Bancoob DTVM has a solid IT structure, relying on a good risk control system (provided by the firm MAPS), a solid portfolio processing system (YMF, provided by Totvs), besides the support of the Sicoob corporate IT team. In 2014, the IT team worked on the integration between the asset manager's systems and the online platform which the associates have access to. However, problems with suppliers have delayed the implementation of this initiative, which then postponed the start of the project for fund distribution to retail clients. This initiative, when resumed and implemented, will allow Bancoob DTVM to offer its product to a larger number of clients, which Fitch considers positive for the diversification of its investor base. Safety and contingency back-up resources are strong and provide a very good level of service in case of need.
Bancoob DTVM, founded in 2005, is an asset manager focused on fixed income, with AUM of BRL7.9 billion in June 2015. Headquartered in Brasilia (DF), it is a full subsidiary of Bancoob, which is part of the Sistema de Cooperativas de Credito do Brasil (Sicoob).
Bancoob DTVM's rating can be sensitive to relevant adverse changes to any of the major fundamentals mentioned above, particularly weakening of its financial profile, high professional turnover, or deterioration in its processes and policies. A major deviation from Fitch guidelines in relation to any key factor can lead to a rating downgrade.