OREANDA-NEWS. Fitch Ratings has affirmed the International Scale Asset Manager Rating for BTG Pactual Asset Management DTVM S.A. (BTG Pactual Asset) at 'Highest Standards'. The Rating Outlook remains Stable.

Key Rating Drivers
BTG Pactual Asset's 'Highest Standards' rating reflects Fitch's opinion that the manager's investment platform and operating framework are superior relative to the standards applied by institutional investors in international markets.

The rating of the asset manager also reflects the benefits of being part of Banco BTG Pactual (BTG Pactual, IDRs 'BBB-'/Outlook Stable). BTG Pactual is one of the largest merchant banks in Brazil. The rating also considers its disciplined investment process, qualified and experienced management, and its robust risk controls and compliance framework.

BTG Pactual Asset's rating applies only its domestic Brazilian operations in traditional funds and does not include its overseas asset management activities, wealth management, private equity and private banking areas, or 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 the management of traditional funds.

Fitch believes that BTG Pactual Asset's main challenges concern the continued execution of the group's international expansion process, and the improvement of returns in its main funds against the backdrop of a strongly competitive and volatile environment. Other challenges include the consolidation of its franchise in the equity funds segment and continued investment and improvement of its tools and controls to support an increase of assets under management (AUM), particularly international assets.

The 'Highest Standards' rating is based on the following assessments:

Company: Highest
Controls: Highest
Investments: Highest
Operations: Highest
Technology: High

Company
BTG Pactual Asset is part of a strong financial conglomerate with significant experience and a well-established franchise in the Brazilian asset management industry. It ranks as the sixth largest asset manager in the country ((the largest without a retail network)) and is one of the group's main business lines, contributing 15% to 20% of the group's results since 2009.
Growth in AUM has declined in recent years, increasing only 7.6% from late 2012 to March 2015, well below the local industry (25.1%). In Fitch's view this reflected the demand for lower-risk investments due to the turmoil in the local economy, and the low performance of its main funds, in line with other asset managers focused on multimarket funds. Investors by AUM has not presented relevant changes, and remains composed of private banking (39% in March 2015), foreigners (18%), corporate (15%), pension funds (11%), distributors (10%) and other (7%).

Pursuant to group strategy, BTG Pactual Asset intends to increase its overseas business as one of the ways to grow and achieve international standing. The group has established or acquired institutions in international financial centers, including asset managers in the U.S., Chile and Colombia. In addition, it also aims to establish an asset manager in Mexico and announced in July 2014 an agreement to acquire BSI, a Swiss private bank, with operations focused in the areas of asset and wealth management, with AUM of about USD100 billion. BSI should continue to operate as a segregated entity and maintain its brand; the acquisition is pending approval from regulators. These expansions will diversify BTG Pactual Asset's investor base and expand AUM, but will require platform integration in different locations and greater attention to risk controls.

BTG Pactual Asset relies on its solid organizational structure and corporate governance, segregated from the other activities of the group. It maintains an adequate structure for the number of funds and investment strategies, concentrated in multimarket funds (40% of AUM as of March 2015). Executive turnover is low, benefiting from the company's compensation policy.

Controls
Risk control, compliance and internal audit frameworks are corporate, being robust and fully segregated from the asset manager. These areas rely on a full set of policies and controls, in addition to regular committees and daily reports to the main executives, which ensures compliance with internal norms and local rules. Fund limits have reported no relevant breaches.

Investments
The investment process, one of BTG Pactual Asset's strengths, is a well-formalized and committee-based process equipped with an experienced and qualified team. It relies on a deep macroeconomic and fundamental company analysis, as well as wide access to market information. Additionally, the investment process benefits from robust risk controls with great emphasis on the liquidity of positions. Two fixed income portfolio managers, both partners, left the company in 2014 and 2015, replaced by team members, with no significant changes in the structure and processes. One of them took the group office in Argentina. Key-person risk is not relevant given that the main executives are partners of the institution, and the second level of investment professionals, as well as executives of other group areas, are also highly experienced.

Operations
The fiduciary administration and custody activities are mostly provided by the group and present a good degree of process automation, which is common industry practice among Brazilian asset managers that are part of larger financial groups. The processes observe regulations and best practices, and are supported by tested technological platforms. These services are standardized, integrated and automated, being overseen by the middle office area and by the group's risk area, with reconciliation of all the operations.

Technology
BTG Pactual Asset relies on sound technological resources, benefiting from the group's corporate structure. Despite that, the group is revamping its entire technological infrastructure with the assistance of a renowned consultant, seeking greater scale and a global presence, as well as integration of its functions and systems. The asset manager is in the process of updating its proprietary front-office system and implementation of a new global system for net asset value (NAV) calculation, with completion of this process forecast occur towards the end of 2016. Its current systems already allow pre-trade blocks and alerts with sound reconciliation and compliance processes. Contingency plans are robust and well-formalized, with back-ups of all critical systems.

Company Profile
BTG Pactual Asset is a full subsidiary of BTG Pactual, controlled by Andre Esteves. Founded in 1983 as a brokerage house, the BTG Pactual group began to manage investment funds in 1984. BTG Pactual Asset is the sixth largest asset manager in Brazil, with 5% share of the local market and AUM of BRL131 billion in March 2015.

RATING SENSITIVITIES

BTG Pactual Asset's rating could be sensitive to relevant adverse changes to any of its rating drivers, particularly in case of a weakening of its financial profile, high turnover of key staff, or deterioration in processes and policies. An important deviation from Fitch's guidelines for any key driver could also lead to a rating downgrade.