Fitch Affirms Schroder Investment Brasil's Rating at 'High Standards';
Outlook Revised to Negative
SAO PAULO & RIO DE JANEIRO -- February 24, 2014
Fitch Ratings has affirmed the International Scale Asset Manager Rating of
Schroder Investment Management Brasil Ltda. (Schroder Brasil) at 'High
Standards'. The Rating Outlook was revised to Negative from Stable.
Key Rating Drivers
The 'High Standards' rating assigned to Schroder Brasil reflects Fitch's
opinion that the investment platform and operational framework of the asset
manager are strong relative to the standards applied by institutional
investors in international markets.
The revision of the Outlook to Negative reflects the challenges Schroder
Brasil faces in the near- to intermediate-term as it restructures its
operations, resulting in substantial staff turnover and modifications to its
investment process as the firm repositions itself following a recent
significant reduction in assets under management, and net losses reported
The affirmation of Schroder Brasil's rating factors in its integration with
the parent, Schroders Plc (Schroders Plc, IDR 'A+'/Outlook Stable), which
mitigates concerns with respect to staff turnover and near-term business
challenges, considering the global strength and franchise of the parent
company. Additionally, Schroder Brasil's investment process as well as the
risk controls and compliance areas also benefit from this relationship.
The rating for Shroder Brasil applies to its activities in the local Brazilian
market managing traditional funds. The group's main company, Schroder
Investment Management, based in London, has an International Scale Asset
Manager Rating of 'Highest Standards/Outlook Stable'.
Fitch believes that Schroder Brasil's main challenges will be related to its
restructuring efforts including reducing turnover amongst its investment
professionals, improving investment performance in its funds, diversifying its
client base and improving profitability.
The 'High Standards' rating is based on the following assessments:
Company: from Highest to High
Investments: from High to Good
Schroder Brasil is part of a profitable and solid global asset management
group. Schroder Brasil's financial results, however, have been deteriorating,
as the manager has experienced significant reductions in AUM, in part a
consequence of underperforming investment returns posted by its equity funds.
The reduction in equity fund AUM, going from BRL3.1 billion in 2010 to BRL277
million in September 2013, has resulted in significantly lower revenues from
administration and performance fees. While the firm has increased AUM in its
fixed income funds to BRL2.1 billion from BRL517 million in the same period,
as a result of lower fees on this business, this increase was not enough to
offset the decline on the equity funds side. Overall, AUM decreased 35% during
the first nine months of 2013. The company implemented significant cost
reductions as a result of the decline in equity fund AUM during 2013.
As of September 2013, its AUM per type of fund comprised fixed income (74%),
multimarket (13%), equity/long only (10%) and long and short (3%), a
significant change from 2010 when fixed income and equity strategies made up
13% and 76%, respectively.
The asset manager relies on a solid organizational structure and corporate
governance, following the global group's methodologies. Despite the large
reduction in the number of professionals, from 34 in December 2012 to 20 in
September 2013, Fitch believes that Schroder Brasil maintains an adequate
structure for the number of funds and investment strategies, focused on
equity/long only and on macro fixed-income, as well as long and short.
Risk and compliance controls are sound and well-formalized, following the
global group's methodologies and policies. The manager maintains a strong
relationship with the parent, which regularly participates in its monthly risk
and compliance committees and carries out internal audits, thus strengthening
the segregation of its activities and the supervision of its policies and
controls. These factors have minimized the turnover in the market risk and
liquidity areas. The current market risk and liquidity manager was hired in
2013. Fund limits have not reported relevant breaches, which are promptly
Notwithstanding its well-established investment processes based on committees
and supported by solid systems and wide access to the markets, Schroder Brasil
has experienced high turnover on its investment team, primarily in the equity
funds group, due to the weak fund performance since 2010. At year-end 2013,
the equity/long-only portfolio manager, the long and short portfolio manager,
two traders and three of the four equity analysts were released. One fixed
income portfolio manager, one fixed income analyst and one long and short
co-portfolio manager remained. The multimarket portfolio manager also left the
company in 2013.
Two Brazilian-based analysts in the global group, covering emerging markets,
took over the equity funds process. One of the analysts in this team was
appointed as portfolio manager in 2014. This manager reports to the head of
Latin America domiciled in London. The fixed income team, which has not
experienced turnover, now reports to the fixed income manager in Argentina.
Administration and custody activities are outsourced to three large financial
conglomerates (Banco Bradesco S.A., Citibank and Itau Unibanco Holding S.A.),
which enhance the segregation of its activities. The processes are in
compliance with regulations and best-market practices and are supported by
solid technological platforms. Services are standardized, fully integrated and
automated, under the supervision of the middle office area, with wide
reconciliation of all its operations.
Schroder Brasil relies on sophisticated management systems, risk control and
back office, benefiting from the group's corporate structure with some systems
in common. These systems enable pre-trading blocks and alerts, as well as
fully automated and integrated managerial reports with reconciliation, trading
and compliance processes. Contingency plans are robust, with back up of all
critical systems and regular tests.
Schroder Brasil is a fully owned subsidiary of Schroders Plc and dates back to
1994, when the group opened an office in Brazil for equity analysis.
Headquartered in London, with a footprint in 27 countries, Schroders Plc has a
strong franchise as a global asset manager with AUM of GBP212 billion as of
September 2013. It was founded in 1804 and has been listed at the London Stock
Exchange since 1959, being controlled by the Schroder Family.
Schroder Brasil's rating is sensitive to relevant adverse changes to any of
its above mentioned major fundamentals, mainly in case of weakening of its
financial profile, high professional turnover or deterioration in its
processes and policies. A relevant deviation from Fitch's guidelines for any
key factor could also result in a rating downgrade.
For further information on Fitch's asset manager rating analysis, please refer
to the methodologies mentioned below, which are available at the agency'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
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