Fitch Assigns Asset Manager Rating of 'M3(bra)' to Equitas Administracao de Fundos de Investimentos

Fitch Ratings has assigned an initial National Scale Asset Manager Rating of 'M3(bra)' to Equitas Administracao de Fundos de Investimento Ltda (Equitas).

The 'M3(bra)' category is assigned to asset managers that show limited vulnerability to operational and investment management failures. Asset managers in this category meet or exceed adequate standards of investment management competency in all scored categories, namely company and staffing, risk management and controls, portfolio management, investment administration and technology.

The rating reflects Equitas' good experience and performance in the latter five years and focus on local equity strategies, primarily long-short, as an independent asset manager in Brazil. The rating also accounts for Equitas' adequate investment and administration processes, and for the growing volume of assets under management (AuM) over the cycle despite the impacts of redemptions observed in 2011 due the market's great risk aversion. These attributes are counterbalanced by Equitas' concentrated client base, which is natural due to its smaller scale, limited distribution and focus on more volatile products.

The rating also recognizes the asset manager's well-qualified senior investment team, with a strong focus on proprietary fundamental analysis, and adequate operational systems and risks controls that support the investment allocation decision making process and risk management strategies with daily verification of market risk and liquidity exposures. Also, as an independent asset manager with a lean organizational structure, the rating factors Equitas' dependency on highly specialized key partners in portfolio strategy implementation and risk controls, which is in part mitigated by the limited turnover and stability observed in the executive partners team.

Equitas presents a relatively robust investment process that is sourced from a well formalized and good in-depth proprietary research for a selected universe of companies and diversified investment strategies with performance targets and risk exposure limits for each mandate. Investment decisions are formalized through committees even though there is a certain level of centralization in decision-making process.

The investment administration and compliance framework are adequate and benefit from the fact that administration and custody activities are outsourced to specialized and well recognized providers, strengthening the segregation of those activities through good standardized and automated resources. Fitch views this as efficient and secure from an operational perspective, although the technological platform that serves the company's overall IT requirements counts on basic security and contingency resources.

Among the key challenges for Equitas are the diversification of its client base profile, the maintenance of its investment performance and results in a volatile environment given the competitive nature of the industry, and the improvement and continuous alignment of its resources with the projected growth of the company including the investment team development in order to reduce the 'key-person risk' exposure.

Equitas' 'M3(bra)' rating is based on the following category scores, which represent a scale from 1 to 5, with 1 as the highest possible score:

Company & Staffing: 3.50
Risk Management and Controls: 2.75
Portfolio Management: 2.50
Investment Administration: 2.75
Technology: 3.50

Equitas is an independent asset manager in a partnership model created in October 2006 with AuM of BRL454 million as of December 2011. Portfolio management is performed with an equity multi-strategy approach for three main mandates with different levels of risk among long-short and long-biased funds that seek to achieve long term risk-adjusted performance above the respective benchmarks. The distribution is oriented to local dealers mainly through financial institutions platforms, independent advisory firms, multi and single family offices.

The rating may be sensitive to significant adverse changes to any of the aforementioned rating drivers. A material deviation from Fitch guidelines for any rating driver could cause the rating to be lowered by Fitch. For additional information on Fitch asset managers' guidelines, please refer to the criteria referenced below, which can be found on Fitch's websites, at 'www.fitchratings.com' or 'www.fitchratings.com.br'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

-- 'Reviewing and Rating Asset Managers' (Aug. 13, 2010);

-- 'National Scale Asset Manager Rating Criteria' (July 2, 2010).

Applicable Criteria and Related Research:

Reviewing and Rating Asset Managers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547947

National Scale Asset Manager Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=536665

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Contacts:

Fitch Ratings Brasil Ltda.
Primary Analyst
Gilberto Moriama, [phone]
Director
Alameda Santos, 700 - 7 andar - Cerqueira Cesar - Sao Paulo SP - CEP: 01418-100
or
Secondary Analyst
Maria Rita Goncalves, [phone]
Senior Director
or
Committee Chairperson
Davie R. Rodriguez, CFA, [phone]
Senior Director
or
Media Relations
Brian Bertsch, [phone] (New York)
[e-mail]
Jaqueline Carvalho, [phone] (Rio de Janeiro)
[e-mail]