Fitch Affirms BTG Pactual Asset Management's National Asset Manager Rating
SAO PAULO & RIO DE JANEIRO & NEW YORK -- April 18, 2013
Fitch Ratings today affirmed the National Asset Manager Rating of BTG Pactual
Asset Management S.A. Distribuidora de Titulos e Valores Mobiliarios (BTG
Pactual Asset) at 'M1(bra)'. The 'M1(bra)' category is assigned to asset
managers that demonstrate very low vulnerability to operational and investment
KEY RATING DRIVERS
BTG Pactual Asset's National Asset Manager Rating reflects the benefits of
being part of the Banco BTG Pactual group (foreign and local currency Issuer
Default Ratings [IDRs] of 'BBB-', Outlook Stable), one of the largest merchant
banks in Brazil. It also reflects the bank's a strong reputation in its
business segments, with good profitability ratios. The rating also considers
its well-defined and disciplined investment process and qualified and seasoned
management, as well as its robust risk controls and compliance.
BTG Pactual Asset's rating encompasses its local operations and does not
include its overseas asset management activities, wealth and private banking
management areas and those related to real estate funds and third-party funds
of funds. All these activities have their own processes and policies and are
segregated from BTG Pactual Asset.
BTG Pactual Asset'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: 1.75
Risk Management and Controls: 1.75
Portfolio Management: 1.50
Investment Administration: 2.00
COMPANY AND STAFFING
BTG Pactual Asset has strong expertise and franchise in the Brazilian funds
industry, with good profitability and revenue generation. It is one of the
group's main business lines, historically responsible for about 50% of the
group's high fee income. The asset manager has maintained vigorous growth in
its assets under management (AUM up 34% in 2012; 24% not considering the
acquisition of a real estate fund asset manager with AUM of BRL9 million in
August 2012), surpassing the local industry (15%). This trend is expected to
remain going forward as investors continue to seek more sophisticated funds in
the face of declining local interest rates. This expansion is a consequence of
the funds' good performance and the fact that BTG Pactual Asset is part of a
complete merchant bank with strong company and investor relationships.
Pursuant to group strategy, the asset manager intends to increase its overseas
business as one of the ways to grow and achieve international standing. The
group has established brokerage houses in important international financial
centers, as well as having recently acquired an important Chilean brokerage
firm and another in Colombia. At fiscal year-end (FYE) 2012, foreign investors
held 13% of AUM. This expansion will diversify its investor base and expand
the volume under management, but will require platform integration of the
different locations and greater attention to risk controls.
Fitch considers the client and product base to be concentrated (the 10 largest
investors accounted for 38% of AUM at FYE 2012). BTG Pactual Asset's
challenges also include the consolidation of its presence in equity funds and
the group's process of becoming an international player. Nevertheless, the
agency believes the investments made and the continued improvement in tools
and systems underway can accommodate the expected growth.
RISK MANAGEMENT AND CONTROLS
Strong integration with the group and exploitation of synergies have
translated into optimization of the team and costs in risk/compliance
controls, internal auditing and support services, among others. This, however,
has not added conflict of interest risks to the asset manager's operations.
Risk and compliance controls are comprehensive, sophisticated and well-placed,
assuring observance of internal norms and local rules. Fund limits have not
shown significant non-compliance breaches (only a few, in terms of
concentration in the investment policies).
The investment process is one of BTG Pactual Asset's strong points. It is
well-formalized and executed through committees by a highly qualified team,
with strong macroeconomic and corporate fundamentalist analyses, robust risk
controls and high emphasis on liquidity.
Fiduciary management has good process automation, which is highly focused on
scale gains and systems refinement, presenting an advanced degree of
operational risk controls and formalization of its procedures.
The BTG Pactual group has a robust technology area. The contingency plans are
well-prepared and formalized, with redundancy in all critical systems and
simulations and exercises in regular business continuity. Notwithstanding its
already good processes and systems, the group is revamping its entire
technology structure with the assistance of a renowned consultant, seeking
greater scale and a global presence, as well as integration of its functions
and systems. This effort also aims to improve managerial reports and the
potential for simulations. BTG Pactual Asset's internal front-office system
will be further developed and a new back-office's system is being put in
place, with conclusion expected in 2014.
Founded in 1983 as a brokerage house, the BTG Pactual group began to manage
investment funds in 1984. With a 5.5% share in the local market at FYE 2012,
BTG Pactual Asset works exclusively in providing third-party asset management
services. It was the fifth largest asset manager in Brazil (the largest
without a retail network) and the sixth in terms of fiduciary administration,
with BRL122 billion and BRL136 billion, respectively. It has been prominent in
multimarket funds, which represented 50% of the total funds managed at FYE
BTG Pactual Asset'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 criteria mentioned below, available on Fitch's
websites, 'www.fitchratings.com' or 'www.fitchratings.com.br'.
Additional information is available at 'www.fitchratings.com'.
Related Criteria and Research:
-- 'Reviewing and Rating Asset Managers (Aug. 13, 2010);
-- 'National Scale Asset Manager Rating Criteria (July 2, 2010);
-- 'Banco BTG Pactual S.A. - Full Rating Report (April 10, 2013).
Applicable Criteria and Related Research
Reviewing and Rating Asset Managers
Banco BTG Pactual S.A.
National Scale Asset Manager Rating Criteria
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