Fitch Assigns Rating of 'High Standards' to BNP Paribas Asset Management Brasil Ltda.

Fitch Ratings has assigned an International Asset Manager Rating of 'High Standards' to BNP Paribas Asset Management Brasil Ltda. (BNP PAM). The Rating Outlook is Stable.

KEY RATING DRIVERS

The 'High Standards' rating assigned to BNP PAM 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 rating of the asset manager reflects the benefits of being part of its parent company BNP Paribas group (Fitch IDR 'A+'; Outlook Stable), a global and well-established franchise. BNP PAM's rating factors in its experienced executive team, the firm's financial stability, a robust investment process as well as the group's solid operational and technological support. The rating also reflects strong control and governance structures.

The rating assigned to BNP PAM applies only to its activities in the Brazilian market and does not include its offshore funds, private banking activities, third-party funds of funds, fiduciary administration and custody operations. Those areas have their own processes and policies, which are segregated from the traditional fund management.

In Fitch's opinion, BNP PAM's key challenges are to diminish AUM volatility, to continue to implement actions to reduce the turnover of its professionals, to improve the performance of part of its funds and to have a better integrated front office system.

The 'High Standards' rating is based on the following category assessments:

Company: High

Controls: High

Investments: Highest

Operations: High

Technology: High

Company

Established in 1998, BNP PAM is a subsidiary of the BNP Paribas group, a global diversified financial institution. BNP PAM had a total AUM of BRL29 billion in September 2014. BNP PAM is a manager specialized in providing investment solutions to a broad base of investors but with a special focus on mandates for institutional and corporate clients. Its organizational structure is fully segregated from BNP Paribas group's other activities, with a strong corporate governance and compliance policy. Fitch believes that the firm's overall structure is strong relative to the current level of AUM as well as the number and complexity of its investment strategies.

As of September 2014, BNP PAM reported the following client profile: institutional investors (37%), foreign investors (29%), private banking (10%), third party distributors (10%) as well as others (14%). Fixed income strategies represent the largest component of AUM (48%), while the remaining AUM is distributed among the following fund types: DI indexed (11%), multimarket (17%) and equities (24%, which 18% of it are from foreign investors). Some mandates have not performed well in comparison to the benchmarks and peers in 2014, especially in the multimarket and equities strategies. BNP PAM's AUM has been volatile since December 2010 due to very specific cases, such as competitive performance-based mandates managed by a group of institutions through dedicated funds that are susceptible to cash flow management of those companies.

Controls

The asset manager relies on a strong and independent risk and compliance structure, following the group's global methodologies and guidelines. BNP PAM presents solid operating risk controls, with low operating losses in the last 24 months, well-formalized and documented compliance policies and strong procedures on market risk and liquidity control. The company also uses post-trading compliance controls, which are monitored using Nexxus, a well-regarded system. These controls are very good and suitable for the current number of funds and strategies. Fitch considers that a pre-trading compliance system could be implemented to further enhance portfolio management control. Fund limit breaches have been low and promptly resolved.

Investments

BNP PAM maintains a robust investment process, based on committees supported by strong macroeconomic and quantitative research. It uses a top down approach, with detailed strategies supported by good proprietary analyses of the companies for equities mandates. Fitch considers the investment process to be well-structured, with detailed strategies adapted to the limits and rules of each mandate despite portfolio managers having some autonomy in their decisions. The process is well-formalized and segmented among three areas with qualified and experienced professionals. Its investment team consists of: one Head of Fixed Income, one Head of Equities, five portfolio managers, nine analysts, five traders, three economists and one quantitative analyst. The Head of Fixed Income and four portfolio managers were replaced in mid-2013, but the changes did not result in major impacts on the company's activities. Fitch understands that the asset manager needs to reduce personnel turnover in order to provide more stability and more continuity to the investment team.

Operations

The asset manager provides a very good level of transparency and communication materials to its investors, while adhering to all the disclosure requirements of the Brazilian Securities and Exchange Commission (CVM) and the Brazilian Association of Entities of the Financial and Capital Markets (Anbima).

Similar to other large bank-affiliated asset managers in Brazil, the fiduciary administration and custody activities are mostly developed by another business unit of the group. The processes observe regulations and are supported by solid technological platform (YMF), with good process automation. In addition, the middle-office areas carry out the reconciliation of the whole operating process, including the trading activity.

Technology

BNP PAM relies on solid asset management, risk control and back-office systems, besides benefitting from the strong structure and technological platform of BNP Paribas group. The asset manager relies on a very good risk control system (Mitra - provided by Luz Engenharia) and solid order management system for equities (provided by Bloomberg). The company has plans to invest in technology in order to automate processes and insure quality and consistency of the databases. Safety and contingency back up resources are solid and provide a very good level of service in case of need.

Company Profile

BNP PAM, established in 1998, is the 12th largest asset manager in Brazil with AUM of BRL29 billion, as of September 2014. Incorporated in Sao Paulo (SP), it is a subsidiary of BNP Paribas group.

RATING SENSITIVITIES

BNP PAM's rating can be sensitive to relevant adverse changes to any of the major fundamentals mentioned above, such as weakening of its financial profile, high professional turnover or deterioration in its processes and policies. Furthermore, it will be important for BNP PAM to develop investment structure, systems and controls further, to be more scalable should the firm seek to add new strategies or if AUM materially increases. A major deviation from Fitch guidelines in relation to any key factors can lead to a rating downgrade.

To obtain additional information on Fitch's asset manager rating criteria, please refer to the criteria mentioned below, available on 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' (May 6, 2014).

Applicable Criteria and Related Research:

Asset Manager Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747701

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=912916

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