Fitch Assigns National Asset Manager Rating 'M1(bra)' to Viter
Fitch Ratings has today assigned the National Asset Manager Rating 'M1(bra)' to Viter - Vice-Presidencia de Gestao de Ativos de Terceiros (Viter) of the Caixa Economica Federal (Caixa). The 'M1(bra)' rating is assigned to asset managers that demonstrate very low vulnerability to operational and investment management failure.
Viter's National Asset Manager Rating reflects the fact that the asset manager is part of a solid financial conglomerate, Caixa (National Long-Term Rating 'AAA(bra)' with a Stable Outlook by Fitch). The rating also reflects its very conservative approach and the broad client base and distribution channels, as well as a well-disciplined investment process, concentrated in traditional fixed income and DI funds. In addition, the rating considers its strong revenue generation, good technology structure and internal controls, as well as ample market and liquidity risk controls.
Viter's rating considers its activities in the domestic market, including traditional funds (BRL141 billion in Sep. 2012) and the management accounts with FGTS' liquid resources (BRL135 billion). The rating does not contemplate the structured funds (BRL41 billion), such as receivables-backed investment funds (FIDCs) and private equity funds (FIPs). Those funds have processes and policies segregated from management of the traditional funds.
Viter's 'M1(bra)' rating is based on the following score categories, which represent a scale from '1' to '5', '1' being the highest possible:
Organizational Structure and Teams: 1.50
Risk Management and Controls: 1.75
Portfolio Management: 1.75
Investment Administration: 2.25
Viter participates in a solid financial conglomerate that is very diversified and profitable. It has substantial experience in the management of traditional funds, with strong revenue generation. Assets under management (AUM) have shown high growth, with a CAGR of 16% between 2007 and 3Q'12, compared with 12% for the industry. This increase has been mainly in government entities (15% of the AUM at 3Q'12 and 3% in 2007), corporate (10% and 4%, respectively) and pension funds (13% and 9%), benefited by its strong relationship with the government and the implantation of specific areas for those segments.
Prominent among Viter's main challenges is diversification for more sophisticated funds, such as credit and equity strategies, as it seeks to compensate the decline in management fees on traditional funds. In addition, the decreasing of the local rates also should affect its revenues generation, through of lower remuneration of the funds. Other important challenges are the continued investment in tools and controls to support growth, especially in more sophisticated funds, and the implementation of a formal and more comprehensive asset pricing methodology, as well as improving the performance of equity class and multimarket funds.
Viter has a well-established corporate governance structure, which involves formal and disciplined committees. The asset manager's risk culture is very conservative, with various well-established market and liquidity risk limits and ample supervision by senior executives. Fund liquidity has been ample, benefited by the high volume of federal securities and the fact that it concentrates private credit exposures in large companies and financial institutions. Breaches of those limits have not been relevant and were quickly resolved, using risk systems common to the local market.
Viter's investment process is well-established, based on committees and a top down and sectorial approach with long-term view, supported by reports and simulations from the risk area. The portfolio managers' team is adequate and experienced, benefiting from the stability of its professionals, all having been with the institution for more than 10 years and having strong academic backgrounds. The performance of the fixed income funds has been good, achieving their return objectives in the past two years, while those of equity funds have fallen short of the goals.
Fiduciary administration and custody activities rely upon good capacity and degree of automation, but there is room for improvements in the integration of its processes. Some of the custody and accounting services (19% of AUM, virtually consisting of the more sophisticated funds) are handled by other large financial institutions. Although the processes comply with regulations, reconciliation of asset pricing affected by outsourced service providers is only verified by sample bimonthly by the back-office and compliance area. Caixa's custody areas are in the process of implementing a more comprehensive and formalized methodology for pricing assets.
The asset manager has a robust technology platform, although it is in the process of implementing a new asset control system, which is expected to improve automation and agility in its processes. The new system includes pre-trading verification with blocks/alerts and facilities for obtaining managerial reports. The contingency plans are well-prepared, with redundancy in all critical systems.
Originating in 1998, Viter is responsible for the management of Caixa's third-party assets. It is the fourth-largest asset manager in Brazil, with a 7.5% share in the local market and AUM of BRL141 billion at 3Q'12, according to the Associacao Brasileira dos Mercados Financeiros e de Capitais (Anbima), the Brazilian financial and capital markets association.
Caixa, established in 1861, was the fourth-largest bank in Brazil in assets and the second in deposits at 1H12, with assets of BRL596 billion and a profit of BRL2.8 billion (BRL5.2 billion at FYE11). It is totally controlled by the federal government and its ratings reflect the high probability of support from the Brazilian government in case of necessity.
Viter's rating could be sensitive to adverse changes in the key classification drivers. An important deviation from the Fitch guidelines for any key driver could trigger a rating downgrade. To obtain additional information on Fitch's asset manager rating methodologies, consult the methodologies mentioned below, available on Fitch's websites, 'www.fitchratings.com' or 'www.fitchratings.com.br'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research
--'Reviewing and Rating Asset Managers' (Aug. 13, 2010).
--'National Scale Asset Manager Rating Criteria (July 2, 2010).
Applicable Criteria and Related Research:
Reviewing and Rating Asset Managers
National Scale Asset Manager Rating Criteria
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