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Fitch Affirms Itau Asset Management's National Asset Manager Rating at 'M1(BRA)'

SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)-- Fitch Ratings has today affirmed the 'M1(bra)' National Asset Manager Rating of Itau Asset Management (IAM). The 'M1(bra)' rating is assigned to asset manager operations that show the lowest vulnerability to operating and investment management failures.

IAM's National Asset Manager Rating factors in its continued market leadership in several investor segments, large distribution channels, a broad and diversified client base, fund strategies and revenue stream, and the quality of senior management. In addition, it also considers the well-established investment process, well-defined and segregated activities and processes, rigid controls and compliance policies, and its strong investments in technology and controls. The rating also benefits from the solid franchise of the parent, Itau Unibanco Holding S.A. (IUH; rated with a Local Currency Issuer Default Rating of 'A-'; Stable Outlook by Fitch), the largest privately-owned financial conglomerate in Brazil and Latin America.

The perimeter of the rating assessment considers IAM's domestic activities only and does not include offshore and private banking businesses, as well as Intrag DTVM, which offers fiduciary administration and custody services to institutional clients and performs the management of receivables-backed investment funds (FIDCs). It also does not consider the investment management activities of third-party fund of funds, local operations in other countries and Kinea Investimentos Ltda., which is a dedicated company for alternative investments management. All those operations have their own processes and policies segregated from IAM.

IAM has maintained its position as the largest privately-owned asset manager in Brazil, and market leadership or relevance in several segments such as institutional, corporate, private banking and prime retail. Recent changes in its assets under management (AUM) profile have been aligned with investors' higher demand for Fixed Income funds, which has increased from 26% to 40% of total AUM during 2010 and first half 2012 (1H'12) due to a lower local interest rate environment. Also, AUM growth has been marginally lower than that of the industry between 2011 and 1H'12, and competitive pressures from funding products have decreased during this period. Fitch considers that competition with these products may pose challenges in case of the return of loan growth, as observed in the previous cycle.

There were no relevant changes in the asset manager's structure in the last year, although the CEO, Demosthenes Madureira Pinho, was replaced by Gustavo Murgel at the beginning of 2012 without changes in IAM's guidelines. On the other hand, IAM has been strategically oriented toward achieving a global position, especially in the Latin America market, based on its well-established local presence. Strong investments have been made in institutional distribution platforms in the major financial centers worldwide, along with strategic alliances with global institutions, product offering and robust systems, and controls and practices according to global standards. The successful deployment of these initiatives has been the focus and main challenge for IAM.

Risk management continues to be performed through a robust and independent control organizational structure with appropriate committee-based governance and oversight. Funds have not experienced market risk limit breaches, and deviations in concentration limits have been low and promptly addressed. The implementation of the pre-trade check and order management modules of a well-respected global system was concluded at the end of last year for the great majority of mandates. Although the project implementation has not been totally accomplished, those two new capabilities contribute to operational risk reduction and offer enhancements in automation and efficiency of controls.

The portfolio management process has also experienced some improvements, although there has been no call for changes in investment structure. It has also benefited from the implementation of those two same modules of the global system and an additional one for portfolio modeling and analysis. The investment process remains well-defined based on formalized committee decisions and a large and very experienced investment team. Portfolio managers have been alternatively organized by fund objective (Beta, Alpha and High Alpha) with integrated equity research analysts.

Since the implementation in 2009, this organizational structure has provided a very good focus for management style as well as allowed for the alignment of important capabilities, including professionals and resources. It is also supported by well-qualified teams for macro and quantitative research and centralized trading execution. Fitch considers IAM's portfolio management structure to be one of the best-in-class among the large asset managers in Brazilian industry and well-suited to face the aggressive competitive arena.

Administration and Custody are performed by the group's business units as it is at other large bank-related asset managers. The processes are compliant with regulations and best practices and are supported by secure and strong technology platforms and a large corporate structure.

Founded in 1965, IAM is the second-largest asset manager in Brazil with around 14.8% of market share and AUM of BRL299.5 billion as of June 2012. The AUM annual compounded average growth rate was 15.8% between 2009 and 1H'12, after the consolidation of Unibanco's operations, compared with 17.1% of the industry in the same period. IAM is a business unit of Itau Unibanco Holding S.A., the largest privately-owned financial conglomerate in Brazil and Latin America.

IAM'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: 1.25

--Risk Management and Controls: 1.25 (from 1.50)

--Portfolio Management: 1.25 (from 1.50)

--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);

--'National Scale Asset Manager Rating Criteria' (July 02, 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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Fitch Ratings
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Gilberto Moriama, +55-11-4504-2600
Director
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or
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Director
or
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Davie R. Rodriguez, CFA, +1 212-908-0386
Senior Director
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Email: jaqueline.carvalho@fitchratings.com
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Source: Fitch Ratings