Fitch Affirms STK Capital Gestora de Recursos' Asset Manager Rating at 'Good Standards'
Key Rating Drivers
STK's 'Good Standards' rating reflects Fitch's view that the company's investment platform and operating framework are good relative to the standards applied by international institutional investors.
The rating factors in the strong experience of STK's executive team, the company's profitability as a result of low fixed costs and the revenue of the equity funds, and the solid investment process based on its current strategies, supported by in-depth proprietary research. The rating further reflects the adequate structure of controls, governance and back-office services provided by well-known specialized companies such as BNY Mellon Group and Banco Bradesco S.A.
The asset manager's rating applies only to its activities in the domestic market and does not include its overseas operations and third-party funds of funds, which have their own processes and policies.
STK's key challenges are maintaining performance above the benchmarks for local funds in a scenario of high volatility, despite the negative performance in 2014 and 2015 following the equity asset class' performance, diversification of its investor base, reduction of key-person risk, and improving controls and systems to support potential assets under management (AUM) growth.
STK's 'Good Standards' rating is based on the following assessments:
Company: Good
Controls: Good
Investments: High
Operations: Good
Technology: Good
Company
Founded in 2010, STK is an independent asset manager specialized in long-biased and long-only strategies with 84% of AUM in such strategies as of September 2015. The remainder comprised funds of third-party funds. It has a partnership model with a total of 18 professionals and a board of directors with three members, most of these with significant experience in the segment. The members of the board and the CEO are the founding partners and hold a controlling stake, while the other 10 partners reinforce the governance and stability of the executives. STK has reported annual profits in all periods, benefiting from its low fixed costs.
The structure is adequate for the level of AUM and the number of investment strategies and relies on recognized companies such as BNY Mellon Group and Banco Bradesco S.A., respectively, for support in fiduciary administration and custody.
As of September 2015, STK managed BRL1.35 billion in AUM, most of it (82%) was from the partners. AUM has increased above the local industry average, benefiting from the good performance of its funds until 2013. In 2014 and 2015, offshore funds continued to show good performance in BRL, benefiting from the appreciation of the USD. The local funds, in turn, showed a negative performance during the period, as did other Brazilian equity and long-biased funds, but remained above the benchmark and the first or second quartile relative to peers.
Controls
Fitch views STK's risk control structure as adequate, with daily risk reports, weekly committees and satisfactory controls and policies. The risk control area reports to the COO/CRO. There is no separate operational risk structure, but this is offset by the operational workflow and daily reconciliation of the operating processes. As a result, operating losses have been very low.
Despite having no formal limits, STK monitors market and liquidity risks across all its portfolios and funds. In addition, the firm also employs compliance controls that are monitored by a proprietary system that includes pre-trading alerts. Fitch views these controls as very good given current investment guidelines. In addition to STK's own processes, BNY Mellon group as fiduciary manager also monitors investment funds relative to compliance rules, being responsible for this activity per local rules. Fund limit breaches have been low and quickly solved.
Investments
The investment process is based on a fundamental approach following a value-oriented strategy of long-biased and long-only funds. Fitch views STK's investment process to be well structured, with detailed strategies and supported by in-depth proprietary analyses of companies. The asset manager has good access to high-quality reports from local and foreign brokerage houses. The management team is adequate for the number of strategies and funds, with a good deal of experience in the segment. The team consists of one CIO, who is also the portfolio manager of the funds that invest in the Brazilian market, a portfolio manager for funds that invest globally, a portfolio manager for third party funds of funds, a head of research, five analysts and a trader. Key-person risk is mitigated by the fact that most of the executives are partners of the asset manager, and decisions are discussed in formal and regular committees.
The long-biased funds operate with long-term strategies and use of derivatives as hedge options, with an aim to surpass the IPCA ratio +6% per year. The gross share exposure has an interval of 50% to 150%, and net of 60% to 90%. The long-only funds have a typical share exposure of 67% to 100% of the fund, per local rules, with an aim to surpass the Ibovespa index over the long term. The funds hold from 15 to 25 companies and are focused on liquid shares of medium and large companies. Concentrations can be large, with individual exposure limits of up to 15% of the fund's AUM, although the largest exposures hardly exceeds 10%. The funds of third-party funds are also allocated to equity fund strategies, with around 90% of the AUM being allocated to companies abroad.
Operations
Fiduciary administration activities are carried out by BNY Mellon group, while custody activities are performed by banks Bradesco, Safra, Morgan Stanley and JP Morgan, all well-known companies, with daily asset pricing and NAV calculation. The reconciliation of the whole operating procedure is carried out by the middle-office area using a solid proprietary system, with standardized and integrated procedures.
Technology
STK has an adequate IT structure, relying on a very good proprietary system and the support of a specialized company. Its processes are automated and integrated with the systems of external providers, such as the fiduciary administrator and brokerage houses. Moreover, critical databases for funds' assets and liabilities are also maintained by the fiduciary administrator. Security and contingency resources are appropriate.
Company Profile
STK, founded in 2010, is an independent asset manager with AUM of BRL1.35 billion as of September 2015. Incorporated in Rio de Janeiro (RJ), it relies on a partnership model with 18 professionals.
Rating Sensitivities
STK's rating could be sensitive to relevant adverse changes to any of its key drivers mentioned above, notably in case of a weakening in its financial profile, high turnover of its professionals or deterioration in its processes and policies. An important deviation from Fitch's guidelines for any key driver could result in a rating downgrade.
To obtain additional information on Fitch's asset manager rating criteria, consult the criteria mentioned below, available on the agency's websites at 'www.fitchratings.com' or 'www.fitchratings.com.br'.
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