KEY RATING DRIVERS
The rating of 'Good Standards' assigned to STK 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 experience of STK's executive team, the company's high profitability as a consequence of low fixed costs and high margins of equity funds, and the strong investment process for 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 only applies 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 is aware of its key challenges and has pursued means to mitigate them. The asset manager has reinforced its investment process to maintain the good performance of its funds against a backdrop of higher volatility and increased competition. Other challenges are to reduce key person risk and improve controls and systems to support potential third-party AUM growth.
STK's 'Good Standards' rating is based on the following category assessments:
Founded in 2010, STK is an independent asset manager specialized in long biased and long only strategies with 82% of AUM in such strategies as of
Fitch believes that the structure is adequate for the level of AUM and the number of the firm investment strategies (primarily long biased and long only with a longer-term value focus). In
Fitch views STK's risk control structure as adequate, with weekly committees, daily risk reports and satisfactory controls and set of policies. The risk control area reports to the COO/CRO. There is no separate operational structure, but operational risks are offset by daily reconciliation and operational workflows and, as result, operating losses have been low.
With respect to investment risk management, STK monitors market and liquidity risks across its investment portfolios. Additionally, the firm also employs proprietary compliance controls that are monitored on a proprietary system that includes pre trading alerts when exposure limits are breached. While not 'state of art', Fitch views these controls as good given current investment guidelines. Fitch notes that STK is able to accumulate some significant risk concentrations with single-position limits being as high as 15%. In addition to STK's own processes, BNY Mellon group as fiduciary manager, also monitors the investment portfolio for compliance breaches as it is also responsible for this activity per local rules. Fund limit breaches have been low and quickly solved.
The investment process is based on a bottom-up value oriented approach with long-biased and long-only strategies. Fitch considers STK's investment process to be well-structured, with detailed strategies supported by in-depth research of companies. The asset manager has good access to high quality reports from local and foreign brokerage houses. The size of investment team is adequate for the number of strategies and funds. The team consists of one CIO for local funds and one CIO for foreign funds, as well as one head of research and six analysts. Key person risk is mitigated by the fact that most of the executives are partners of the asset manager and that decisions are discussed in formal and regular committees.
Fiduciary administration and custody activities are carried out by BNY Mellon group and Banco Bradesco S.A., both 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 utilizing a solid proprietary system. These procedures are well-standardized and integrated.
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 service 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.
STK, founded in 2010, is an independent asset manager with AUM of
STK's rating could be sensitive to relevant adverse changes to any of its key drivers as mentioned above, notably a weakening in its financial profile, high turnover of its professionals or deterioration in its processes and policies. Additionally, it will be important that the investment infrastructure, systems and controls evolve if new strategies are added or third-party assets grow materially. 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'.
Additional information is available at www.fitchratings.com'.
--'Asset Manager Rating Criteria' (
Asset Manager Rating Criteria
Fitch Ratings Brasil Ltda.
Source: Fitch Ratings
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