Fitch Affirms J. Safra Asset Management Ltda’ Rating at ‘Highest Standards’

— Fitch Ratings has affirmed the International Scale Asset Manager Rating at ‘Highest Standards’ for J. Safra Asset Management Ltda. (J. Safra Asset). The Rating Outlook remains Stable.

Key Rating Drivers
The ‘Highest Standards’ rating for J. Safra Asset reflects Fitch’s view that the company’s investment platform and operating framework are superior relative to the standards applied by international institutional investors.

The rating affirmation of J. Safra Asset reflects its well-formalized and consistent practices for investment process, risk controls and compliance, in addition to its robust and segregated structures for fiduciary administration and custody, in line with the best practices in the market. The rating also benefits from the solid franchise of the parent, Banco Safra S.A. (Banco Safra, Issuer Default Rating [IDR] ‘BBB’/Outlook Stable), the fifth largest private financial conglomerate in Brazil, from the company’s continuous investments in technology, satisfactory distribution channels and corporate structure of the group.

J. Safra Asset’s rating applies to its Brazilian domiciled investment activities and does not include offshore, private banking, wealth management, fund of funds, real estate funds, fiduciary administration and custody operations. Those areas have their own processes and policies, which are segregated from the traditional fund management.

Fitch believes that J. Safra Asset’s main challenges are: to increase its participation in higher value added funds, in the face of stronger competition from other managers and funding products; to keep a competitive edge using a lean personnel investment structure; to diminish AUM volatility and to sustain a consistent performance mainly in the multimarket funds class.

The ‘Highest Standards’ rating is based on the following assessments:

Company: Highest Standards
Controls: Highest Standards
Investments: Highest Standards
Operations: Highest Standards
Technology: High Standards

Company
J. Safra Asset is the tenth largest asset manager in Brazil, with a focus on fixed income and multimarket funds, and significant experience in the local market. It is a part of a solid Brazilian financial conglomerate, is widely diversified and profitable, and is part of a retail and private bank structure in Brazil with a very good distribution network and client base. Its organizational structure has been fully segregated from Safra group’s other activities since 2012, with a strong corporate governance and compliance policy. The asset manager is well-segmented, with well-established processes and qualified and experienced professionals.

The AUM has declined since 2010 (-3.3% from Sept 2010 to Sept 2013), as a consequence of the loss of some mandates for corporate clients. This effect was related to very specific cases, which are competitive performance-based mandates managed by a group of institutions through dedicated funds, which are also susceptible to cash flow management of those companies. In September 2013, the investor profile comprised corporate clients (32%), private banking (22%), retail (18%), open pension funds (7%), closed pension funds (8%), and others (13%).

The AUM profile followed the higher investor demand for fixed income funds (34% of the AUM in Sept 2013) and the asset manager’s strategy to focus in multimarket funds (47% of AUM in Sept 2013). Equity funds represented 2%; real estate, 16%; and others, 1%.

Controls
J Safra relies on a strong and independent risk and compliance structure alongside an internal auditor’s area, all of which are a part of the Banco Safra’s corporate structure. The asset manager presents robust market and liquidity risk controls, adequate operating risk controls with no reported operating losses in 2013, and well-formalized and documented compliance policies. Limit breaches have been low and promptly addressed.

Investments
J. Safra maintains a robust investment process, based on committees supported by solid macroeconomic and fundamentalist research. The process is well-formalized and has provided a top-down scenario and an asset allocation input for all the investment mandates. Portfolio managers have some autonomy in their decisions but must follow the committee guidelines. The equities team has presented staff turnover in recent years. J. Safra recently hired a senior equities portfolio manager in order to strengthen its equity investment process and provide additional input for its idea generation.

Operations
J.Safra provides a very good overall communication with proper adherence to all asset management disclosure obligations made by CVM and Anbima and specialized relationship managers for each customer segment.

Similar to other large bank-affiliated asset managers in Brazil, the fiduciary administration and custody activities are developed by another business unit of the group. The processes observe regulations and best practices, supported by suitable technological platforms and a robust corporate structure, with good process automation. In addition, the middle office and market risk areas carry out the reconciliation of the whole operating process, including the trading activity.

Technology
J. Safra Asset Management relies on solid risk controls and automated and integrated systems, in addition to the robust structure and technological platform of Banco Safra. The asset manager has made adequate investments in systems and controls to improve the efficiency and agility of the processes. In 2013 it has implemented a front-office system for equity trading and it is assessing solutions for fixed income securities. The implementation of the aforementioned platform enables higher speed and better controls, as well as pre-trading blockings and alerts, among other benefits.

Company Profile
The Safra group has operated in asset management activities since 1980. J. Safra Asset Management is the tenth largest asset manager in Brazil, with AUM of BRL36.5 billion and 1.6% of market share in September 2013, according to the Brazilian Association of Financial and Capital Market Entities (Anbima). The company is responsible for the third party asset management of Banco Safra S.A., ranked as fifth private bank in the country in terms of assets.

Rating Sensitivities
J. Safra Asset’s rating could be sensitive to adverse changes to any of the key drivers mentioned above, notably a weakening in its financial profile, high turnover of professionals or deterioration in its processes and policies. An important deviation from Fitch’s guidelines for any key driver could result in a rating downgrades.

For additional information on Fitch asset managers’ guidelines, please refer to the criteria referenced below, which can be found on Fitch’s websites, at ‘www.fitchratings.com‘ or ‘www.fitchratings.com.br‘.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
–‘Asset Manager Rating Criteria’ (April 22, 2013).

Applicable Criteria and Related Research:
Asset Manager Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=706476

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=809850
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Thursday, November 28th, 2013 EN

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