Fitch Ratings has today affirmed the 'M1(bra)' National Asset Manager Rating of HSBC Multimanager Funds (HSBC Multimanager), business unit of HSBC Gestao de Recursos Ltda. (HSBC Gestao de Recursos, rated 'M1(bra)' by Fitch), which belongs to HSBC Bank Brasil S.A. - Banco Multiplo (HSBC Brasil). The 'M1(bra)' rating is assigned to asset manager operations which show the lowest vulnerability to operating and investment management failures.
The affirmation of HSBC Multimanager's rating factors in its strong integration with the group's global funds management unit in the adoption of policies and controls; the benefit of the strong franchise of its parent, HSBC Holdings Plc. (HSBC Holdings, IDR 'AA'; Outlook Negative); high degree of formalization in its manager selection and portfolio construction processes and policies; well-structured and consistent risk and compliance controls; and strong emphasis on liquidity management with a focus on multi-asset fund strategies.
The rating considers HSBC Multimanager's domestic activities only and does not include the investment process of other funds from the asset management division, private banking, and custody operations. Those areas have segregated processes and policies.
The asset management activities are highly important for HSBC group, one of the major participants in this industry worldwide, with assets under management (AUM) of USD429 billion as of March 2012, of which around USD31billion is managed by HSBC Global Multimanager Funds. This unit is responsible for setting global policies and methodologies and for coordinating fund of funds management activities globally. Additionally, Fitch notes that the manager relies on well-formalized and consistent risk and compliance controls and investment policies with large support from systems and committees to mitigate conflicts of interest and monitor processes and exposures, reducing the risks associated with its lean organizational structure.
Fitch highlights that HSBC Multimanager maintains this lean organizational structure and had exhibited high turnover of its executive team in the past despite the stability observed during the last year. More time is necessary to verify if this stability remains or if further turnover may jeopardize its development in terms of funding or its processes and controls. Out of the five existing professionals, two were replaced between 2010 and 1Q'11, besides the chief investment officer, who became the Head of Sales & Distribution of asset management unit. Nevertheless, Fitch considers that the institutionalized nature of HSBC Multimanager's investment and administration process mitigates the turnover impact on the investment process and minimizes the risk of reliance on key individuals for management continuity.
The investment process is robust and based on local market expertise while benefiting from standards set by HSBC's global framework. The funds and managers selection process offers very good market access, robust due diligence procedures and systematized research to support approval decisions. The portfolio management has combined a top-down approach for allocations to fund strategy classes and bottom-up analysis for fund picking in each category. The decision-making process is committee-based and applied to domestic fund of multi-asset funds and fund of equities funds.
Investment risk management benefits from strong controls with a high level of transparency in portfolio exposure by underlying assets as well as good liquidity monitoring. Administration and Custody are handled by the group's business units as do other large bank-related investment managers. The processes are compliant with regulation and best practices and are supported by a strong and secure technology platform as well as a large local corporate structure.
HSBC Multimanager's AUM has exhibited some volatility recently with a decrease of 13% in 2011 followed by an increase of 22% in 1H'12 largely due to the challenging market scenario in this period. This follows the strong AUM growth experienced in 2009 (66%) and 2010 (24%) which was accompanied by the team and process restructuring that has been implemented since 2008. The BRL4.8 billion AUM in 1H'12 is marginally superior (6%) to the 2010 volume.
On the other hand, Fitch notes as positive HSBC's initiatives for AUM diversification by client by seeking increased penetration in institutional and corporate investor segments which represented 39% in 3Q'11 and 47% in 1H'12, respectively, and products such as the growth in equities fund classes which increased from 10% to 17% of total AUM in the same period.
Among the key challenges for HSBC Multimanager is to achieve lower funding volatility, especially during periods of higher macroeconomic uncertainty and risk aversion. Other key challenges include the diversification of its client base and innovation of products, particularly in light of the fund of funds industry consolidation and increasing competition from other private banking-related investment managers, multi-family offices and independent advisory firms.
HSBC Multimanager, created in 2000, is an investment management unit responsible for funds of funds from third-party asset managers of HSBC Gestao de Recursos. The latter is a department which is part of HSBC Brasil, the fourth largest privately-owned bank in Brazil ranked by assets. The bank is controlled by HSBC Holdings, one of the largest financial and banking conglomerates in the world. HSBC Gestao de Recursos is the seventh largest asset manager in Brazil, with around 4% of market share and AUM of BRL92 billion as of March 2012. HSBC Multimanager, in turn, managed BRL4.8 billion in 1H'12 for private clients and institutional and corporate investors.
HSBC Multimanager's 'M1 (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: 1.75
Hedge Fund / Manager Selection: 1.75
Portfolio and Risk Management: 1.75
Investment Administration: 1.50
Technology: 1.50
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 available at 'www.fitchratings.com' or 'www.fitchratings.com.br'. 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);
-- 'Reviewing and Rating Fund of Hedge Fund Managers (June 22, 2009);
-- 'National Scale Asset Manager Rating Criteria (July 02, 2010).
Applicable Criteria and Related Research:
Reviewing and Rating Fund of Hedge Fund Managers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=450928
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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