KEY RATING DRIVERS
ARX's 'Highest Standards' ratings reflects Fitch's opinion that the company's investment platform and operating framework are superior relative to the standards applied by institutional investors in international markets.
The affirmation reflects the strong franchise and corporate governance principles of its controlling owner, The Bank of New York Mellon Corporation (BK, Issuer Default Rating; 'AA-'/Outlook Stable by Fitch). It also factors in the quality of the risk management and compliance framework, in addition to the robust fiduciary administration and custody process. The rating is also based on the well-structured investment process, supported by macroeconomic and fundamental analyses and on ARX's sound technological platform.
ARX's rating only applies to its activities in the domestic market in traditional funds and does not include its overseas asset management activities and the area of third-party funds of funds, as well as the fiduciary administration services which are provided by another company within the group. These activities have their own processes and policies, segregated from the management of traditional funds.
In Fitch's opinion, the ARX's main challenges are reducing its exposure to key person risk in the investment process and expanding recognition of its franchise in multimarket funds to further improve its product mix. The asset manager also faces strong competition from managers offering more sophisticated funds, whose impact is greater at asset managers with a smaller product mix.
The 'Highest Standards' rating is based on the following assessments:
Company: Highest Standards
Controls: Highest Standards
Investments: High Standards
Operations: Highest Standards
Technology: High Standards
ARX has a robust organizational structure and corporate governance framework. It is a wholly owned subsidiary of BK, a strong global financial conglomerate, and maintains sound profitability as one of the parent's main business lines. ARX has developed great experience in equity funds since 2001.
The participation of equity funds has decreased from 24% in
ARX's risk and compliance management benefits from the BK group's strong controls and policies. Control and governance practices are adequate for the higher complexity and scope of company's risks and those of the funds under management. Fund limit breaches have not been relevant, with only a few concentrations related to price movements, which were quickly resolved.
The investment process is well-structured, supported by committees and solid proprietary analyses. ARX also has ample access to market information. However, ARX has a lean management team relative to the complexity of its investment strategies that involve assets with greater volatility. Despite its highly qualified and experienced investment team, and the well-elaborated process, the key person risk remains, given the autonomy of the portfolio managers in making decisions, as well as the executive turnover. Since 2010, the multimarket fund team has experienced a large turnover, the most recent of which, at year-end 2013.
Fiduciary administration is carried out by another company that is part of the group, entirely segregated from ARX. This company is well-recognized in its segment of operation for rendering services to other asset managers, and is one of the largest in the local market. Custody is outsourced to well recognized external providers, such as Banco Bradesco S.A. The operating activities rely on standardized, integrated and automated processes. The manager's middle office area carries out a thorough reconciliation of the whole process to avoid operating failures.
ARX has a solid technological platform, including both proprietary and third-party systems. It is in the final stage of implementing a new front and middle office system,
Founded in 2001, ARX was acquired by BK in 2008, becoming its wholly-owned subsidiary. With
BK has a strong franchise as a global third-party asset manager. Present in 36 countries, it is the world's largest custodian and fiduciary agent of securities and ranks among the 10 largest in several other businesses, such as third-party asset management, with global AUM of
ARX's rating could be sensitive to relevant adverse changes to any of its rating drivers, particularly in case of a weakening of its financial profile, high turnover of key staff, or deterioration in processes and policies. An important deviation from Fitch's guidelines for any key driver could also lead to a rating downgrade.
To obtain additional information on Fitch's criteria for rating asset managers, consult the criteria mentioned below, available on Fitch's websites, 'www.fitchratings.com' or 'www.fitchratings.com.br'.
--'Asset Manager Rating Analysis and Criteria' (
Asset Manager Rating Criteria
Pedro Gomes, +55-11-4504-2604
Fitch Ratings Brasil Ltda.
Source: Fitch Ratings
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