OREANDA-NEWS.  Fitch Ratings has affirmed an International Scale Asset Manager Rating of 'Good Standards' for Perfin Administracao de Recursos Ltda. (Perfin). The Rating Outlook was revised to Positive from Stable.

KEY RATING DRIVERS
The rating assigned to Perfin reflects Fitch's opinion that the manager's investment platform and operational framework are good relative to the standards applied by international institutional investors in global markets.

The Positive Outlook reflects the process of implementation of more robust systems, to be concluded in mid-2015, aimed at improving risk controls and enabling more robust and scalable operational procedures.

The rating factors in Perfin's experienced executive team, the firm's financial stability and profitability, as well as its strong investment process which is supported by in-depth proprietary research. The rating also reflects an adequate control and governance structure, in addition to support services provided by well-known specialized companies, such as BTG Pactual and BNY Mellon groups.

The rating assigned to Perfin only applies to its local activities in Brazil and does not include its overseas operations and wealth management activities, which have their own processes and policies.

In Fitch's opinion, Perfin's key challenges are improving the performance of its funds against a backdrop of high volatility and strong competition, reducing key personnel risk, executing on the process of diversification of its investor base and consolidating its technological platform with an aim at refining its controls so as to support the projected growth of its assets under management (AUM).

Perfin's 'Good Standards' rating is based on the following assessments:

--Company: Good
--Controls: Good
--Investments: High
--Operations: Good
--Technology: Good

Company
Founded in 2007, Perfin is an independent asset manager, specialized in equities in long only and long & short strategies. It is structured as a partnership model with a total of 14 professionals and a three-member consulting board. In addition to the asset management business, Perfin also maintains a segregated wealth management business with five professionals. The CEO/CIO and the COO/CRO, founders of the company, and the Head of Research maintain a controlling ownership stake, while another 13 partners (one of them being a member of the consulting board and another three, being part of the wealth management area) reinforce the governance and stability of the executives.

As of March 2015, Perfin reported AUM of BRL687 million with the following client profile: private banking (38%), distribution firms (24%), institutional (18%), foreign investors (16%) and retail, as well as others (4%). The long only funds accounted for 48% of the assets under management, while the other 52% are allocated to the long & short strategy. The 30% decrease in AUM during the last year is mostly explained by the underperformance in the last 12M in comparison to its peer group and by the migration of assets to more conservative fixed income products observed in the Brazilian funds industry. Fitch believes that the firm's overall structure is adequate given the current level of AUM and investment strategies.

Controls
Perfin monitors market risks and liquidity in all its portfolios and funds on a daily basis. The company also uses proprietary compliance controls, with automated pre and post trading controls for all the funds. A complete and integrated systems solution is being implemented (Eze Software). The trading module considers the main regulatory and managerial rules with still more alerts to be implemented. After the full implementation and testing, the current controls will be replaced. Throughout this phase, the risk team will run both systems in parallel. The new solution also includes the monitoring of funds liabilities and this should improve the controls of liquidity metrics and AUM client concentration. Perfin expects considerable improvements in automation and scalability within the daily controls routines. The analysis of Controls is sensitive to improvements in automation and robustness of the systems, especially in term of the customization of pre trading controls.

Fitch's considers Perfin's risk management structure to be adequate, relying on daily risk reports and satisfactory controls and policies. The control area reports to the COO/CRO, one of Perfin's two major partners; this ensures that the control area maintains an adequate level of influence within the firm. There is no segregated operational risk framework, but this is offset by the work flow and daily reconciliations. There have been no operating losses in the last 12 months. In addition, fund limit breaches have been low and promptly resolved.

Investments
The investment process is based on a bottom-up fundamentalist approach, following long only and long & short strategies. Perfin manages two types of long & short strategies both of which are not market neutral and differ between themselves by the level of market risk they assume. The lower risk fund maintains between 40%-60% of gross exposure and 10%-20% of net exposure, whereas the higher risk fund maintains between 80%-120% gross exposure and 20%-40% net exposure. Fitch's considers Perfin's investment process to be well-structured, with detailed strategies supported by good proprietary bottom-up analysis. Additionally, the investment team, which consists of one CEO/CIO, one Head of Research, five analysts and one trader, is adequate for the number of strategies managed by the firm. One of the senior analysts (partner) left the company due to personal matters. Sectors and companies covered by him were split among the remaining analysts with low impact to the research team's coverage. Key personnel risk is mitigated by the fact that most of the executives are partners and decisions are discussed in formal and regular committees, though Fitch notes that there is a concentration of decision making in the two portfolio managers.

Operations
Fiduciary administration and custody activities are carried out by BTG Pactual and BNY Mellon, both well-known institutions, with solid asset pricing and daily net asset value (NAV) calculations. The asset manager's middle office area also conducts the entire reconciliation with standardized procedures. The new system, on the final stage of implementation, will provide considerable improvements in automation and scalability within the daily routines.

Technology
Perfin has an adequate IT structure, relying on a good risk control system and on the support of a specialized company. The analysis of the IT structure is sensitive to well integrated systems with third parties, customised solutions and dedicated IT support. After the full implementation and testing of the new systems, Perfin expects to perform the same level of controls, with a broad range of new features. They expect to replace the old systems by mid 2015. The system being implemented (Eze Software) delivers a straight-through process solution, decreasing the operational risk and increasing scalability and efficiency. The processes are automated and integrated with the systems of external service providers, such as those of the fiduciary administrator and brokerage houses. Moreover, critical databases for funds' assets and liabilities are also maintained by the fiduciary administrators. Safety and contingency back up resources are appropriate.

Company Profile
Perfin, founded in 2007, is an independent asset manager focused on equities, with AUM of BRL687 million, as of March 2015. Incorporated in Sao Paulo (SP), it has a partnership model with 14 professionals.

Rating Sensitivities
Perfin's rating could be sensitive to important adverse changes in any of the key drivers mentioned above, notably a weakening in its financial profile, high turnover of executives or deterioration in its processes and policies. Furthermore, it will be important for Perfin to improve the performance in a difficult investment environment and to consolidate its improvements on the IT systems thus enhancing its controls. An important deviation from Fitch's guidelines for any key driver could also result in a rating downgrade.