OREANDA-NEWS. Fitch Ratings has affirmed the International Scale Asset Manager Rating at 'Highest Standards' for Viter - Vice-Presidencia de Gestao de Ativos de Terceiros da Caixa Economica Federal (Viter). The Rating Outlook remains Stable.

KEY RATING DRIVERS

Viter's 'Highest Standards' rating reflects Fitch's opinion that the investment platform and operational structure of the manager are superior relative to the standards applied by institutional investors in international markets.

Viter's rating factors in that the asset manager is part of a financial conglomerate, Caixa Economica Federal (Caixa; Issuer Default Ratings [IDRs] 'BB+'/Negative Outlook, Long-term National Rating 'AAA(bra)'/Stable Outlook). The rating also reflects the firm's conservative approach, broad client base and distribution channels, in addition to a well-disciplined investment process, concentrated on traditional fixed-income funds. The rating further considers its strong revenue generation, good technological structure and strong set of internal controls, besides the robust liquidity and market risk management structure.

The rating of the asset manager only considers its activities in the local market, including the portfolio under management of unconstrained funds from the Unemployment Guarantee Fund (Fundo de Garantia por Tempo de Servico). The rating excludes the management of structured funds, such as credit receivables investment funds (FIDCs) and private equity investment funds (FIPs) which have their own processes and policies and are segregated from the management of traditional funds.

Viter's main challenges are the diversification into more sophisticated and higher value-added strategies, the enhancement of performance of its multimarkets and equities funds, the improvement of efficiency and the completion of important projects in technology and automation.

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

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

Company
Viter is part of a large financial conglomerate that is well-diversified and profitable. It is the fourth largest asset manager in Brazil, with significant experience in the fixed-income and credit funds segments with a strong contribution on revenue generation of the group. It is part of a widely diversified state owned retail bank structure within Brazil, a key governmental instrument for social security, infrastructure, economic and real estate projects, with a large distribution network and client base.

The assets under management (AUM) grew in line with that of the local industry, at an approximately 11% compound annual growth rate between 2011 and 2015. This increase happened with inflows from different types of investors. In September 2015, the investor profile of total AUM was comprised of: FGTS (social security fund, 40%), state and municipalities pension funds (13%), governmental funds (8%), retail (15%), pension funds (13%), corporate (6%) and others (5%). Viter has largely benefited from the strong relationship between the group and institutional clients, mainly related to the Brazilian government. The asset manager had also implemented a specialized distribution team to attend this segment.

Viter relies on a well-established corporate governance structure, segregated from the other activities of the group, which involves formal and disciplined committees. The processes are well-established, with qualified and experienced professionals.

Controls
Viter has a complete set of policies, committees and controls in place with an independent structure. The asset manager's risk culture is rather conservative, with several well-established market, credit and liquidity risk limits and close supervision from its main executives. Funds' liquidity has been ample, benefiting from the high volume of sovereign debt. Also, the asset manager has specific policy for broker's selection and fair allocation with strict controls. Breaches of limits have been low and promptly resolved.

Investments
Viter's investment process is well-established, based on committees with a top-down and sectorial approach, with a long-term view supported by risk area analyses. The portfolio management team is adequate and experienced, benefiting from the stability of its professionals, most of which have over 15 years in the market and with the group. Fixed-income fund performance has been good, having reached, in general, return targets in the last couple of years, whereas the equities and multimarket funds are performing below the average.

In November 2015, Viter promoted Sergio Bini, which was the former Head of Investor Relations, as the new CIO. With this change, the company expects to improve its investment processes and implement a long term career planning to attract, develop and retain its key professionals.

Operations
Custody and controllership activities are mainly developed by other departments of the group, such as in other large asset managers linked to banks in Brazil, while the fiduciary administration is done by one area within Viter. The funds' administration and custody activities rely on a good capacity and degree of automation. Such processes observe regulations; conciliation and validation of funds' shares are also carried out by the back office on a daily basis. There is room for improvements in automation and process integration that are expected to be achieved with the full implementation of the new systems.

Technology
Viter is benefited by the group's large IT structure with well-defined procedures, routines and strong information security policies. The asset management unit relies on a solid technological platform with databases integrated in a robust set of banking platforms. The asset manager is in the process of implementing a new asset control system, which should improve the degree of automation and process velocity. The implementation of this system, however, is taking longer than initially expected due to changes on the scope and functionalities. This project has been postponed several times and the migration of funds to the new system has stopped during the last year. Fitch believes that there is room to improvements regarding the project management after the experience with this initiative.

In addition, Viter is considering the development of a new front office system which will include pre-trading verification, with blocks and alerts, and capabilities in obtaining managerial reports. The asset manager already started the discussions around the scope of this project but, as it is still in its initial stage, there isn't a time frame to conclusion. Contingency plans are well-elaborated, with redundancy in all critical systems.

Company Profile
Created in 1998, Viter is responsible for Caixa's third-party asset management. It ranks as the fourth-largest asset manager in Brazil, with 7.1% market participation in the local market and AUM of BRL203 billion, not taking into account the structured funds, according to the Brazilian Association of Financial and Capital Markets (Anbima), as of December 2015. Established in 1861, Caixa ranked as the third-largest bank in Brazil by assets as well as the second by deposits, with BRL1.203 trillion in assets and BRL7.2 billion in net income as of December 2015. Caixa is fully controlled by the Brazilian government and its ratings reflect the high probability of support from the federal government, if necessary.

RATING SENSITIVITIES
The rating of Viter may be sensitive to significant adverse changes to any of the aforementioned rating drivers, mainly in case of a weakening of its financial profile, high professional turnover, or deterioration in its processes and policies. A material deviation from Fitch guidelines for any rating driver could lead to the rating being downgraded by Fitch.

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'.