Fitch Affirms Schroder Investment Management Brasil DTVM SA's 'M2(bra)'
Nat'l Asset Manager Rating
SAO PAULO & RIO DE JANEIRO -- February 8, 2013
Fitch Ratings has affirmed the 'M2(bra)' National Asset Manager Rating for
Schroder Investment Management Brasil S.A. DTVM S.A. (Schroder Brasil). The
'M2(bra)' category is assigned to asset managers that demonstrate low
vulnerability to operating and investment management failures.
KEY RATING DRIVERS
The National Asset Manager Rating of Schroder Brasil reflects its recognized
franchise as a global and independent asset manager, and benefits from the
strong financial capacity of the Schroders Plc group (Schroders Plc, IDR -
Issuer Default Ratings 'A+', Stable Outlook by Fitch) and the company's long
business track record as third-party asset manager. The asset manager is
strongly integrated with its head office, both in the investment process and
the risk and compliance areas, with well-established methodologies and
Schroder Brasil's 'M2(bra)' rating is based on the following category scores,
which represents a scale from 1 to 5, with 1 as the highest possible score:
Company and Staffing: 2.50 (from 2.00)
Risk Management and Controls: 2.00 (from 2.50)
Portfolio Management: 2.00 (from 1.75)
Investment Administration: 2.25 (from 2.50)
Technology: 2.50 (from 3.00)
Schroder Brasil has presented a significant decline in assets under management
(AUM) of equity strategies since mid-2011. This movement was due to the low
performance of equity funds, being offset by the increment in the volumes of
fixed-income funds at the distributors, mainly in 4Q12. Despite the lean
structure, the AUM flows in equity funds have affected company's results,
through lower income from management and performance fees, which resulted in
net losses since 2011.
Fitch believes that one of the main challenges faced by Schroder Brasil is to
improve the performance of equity funds, mainly due to the fact that this is
its main focus in the country and that it is a recognized player in the
segment. The development of the new investment process in equity and the
reduction of portfolio managers' turnover are also important challenges, as
well as expansion of its offering into other products such as fixed-income and
multi-market funds which have helped to reset AUM. Strong concentration is
also seen in its client base, even though Fitch considers this feature to be a
natural given the more restricted focus of its product and distribution
The risk and compliance structure is solid, maintaining a strong integration
with its parent. Schroder Brasil uses the well-established methodologies and
policies of the group to ensure compliance with internal norms and local
rules. The parent also holds supervision on risk and compliance controls and
regularly participates in risk committees. The change of manager risk control,
in late 2011, took place without disruptions in the processes. Moreover, the
group's internal audit, located in London, reinforces the segregation of
activities and supervision of policies and controls. Fund limits have not
shown relevant non-compliance breaches and the asset manager has presented a
good liquidity track record.
Despite qualified and experienced, the investment team is relatively new in
Schroder Brasil, most of them since 2011. In addition, following the
departures of former equity portfolio manager, Carlos Scretas, in mid-2012,
the equity funds process went through some changes to include more top-down
and sectorial view, as it already happened in case of other funds' processes,
in an attempt to improve the performance of the segment. However, it shall
require a longer period to verify the evolution of these changes and of the
new portfolio managers. Nevertheless, Schroder Brasil's investment process is
well-formalized and executed through committees. It relies upon strong
macroeconomic research and fundamentalist corporate analysis, good operational
systems and risk controls to support allocation and risk mitigation decisions.
Administration and custody activities are outsourced to three large financial
conglomerates, which strengthens the segregation of its activities. These
services are standardized, fully integrated and automated, being supervised by
the asset manager's middle office area, which performs a wide reconciliation
of these operations.
Despite lean technology area, Schroder Brasil relies on good asset/portfolio
control systems, which enables pre-trading blocking and alerts, as well as the
elaboration of fully automated and integrated management reports. Following
the implementation in 2011, these systems have improved the reconciliation,
trading and compliance's processes, making them more robust and less
susceptible to operational failures. The asset manager also receives regular
support from specialized IT companies. The contingency plans are adequate,
with redundancy in all critical systems.
Schroder Brasil is a fully owned subsidiary of Schroders Plc and was
established as an office in 1994. Headquartered in London with presence in 25
countries, Schroders Plc's dates back to 1804 and has been listed on the
London stock exchange since 1959. Its franchise in asset management is well
recognized. The group's core subsidiary, Schroder Investment Management, is a
global asset management company, rated 'M1' by Fitch, with AUM of GBP203
billion in September 2012 and Schroder Brasil had AUM of BRL2.7 billion.
Schroder Brasil's rating may be sensitive to significant adverse changes to
any of the aforementioned rating drivers. A material deviation from Fitch
guidelines for any rating driver could lead the rating to be lowered by Fitch.
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. 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);
--'Schroder Investment Management' (Jan. 23, 2013);
--'Schroders Plc' (Oct. 9, 2012);
--'National Scale Asset Manager Rating Criteria' (July 2, 2010).
Applicable Criteria and Related Research:
Reviewing and Rating Asset Managers
Schroder Investment Management - Asset Manager Ratings
National Scale Asset Manager Rating Criteria
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Pedro Gomes, +55-11-4504-2604
Fitch Ratings Brasil Ltda.
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