Standard & Poor's affirms its 'AMP-1' (VERY STRONG) classification on LarrainVial Asset Management Administradora General de Fondos S.A.

On Nov. 10, 2017, S&P Global Ratings affirmed its ‘AMP-1’ (Very Strong) classification on Larrain Vial Asset Management Administradora General de Fondos S.A. (LVAM).

The 'AMP-1' classification reflects LVAM's strong business profile, healthy competitive position as one of the main asset managers of investment and mutual funds in Chile, broad client and product diversification, experienced management team, and clear corporate strategy. The classification is also based on the company's robust operations and controls, well-structured investment management process, very strong risk management capabilities, and sound fiduciary principles. Likewise, the classification on LVMA incorporates the challenges it will face during the next 12 months such as continue expanding amid high competition--from asset managers, which are part of financial groups, and independent institutions--keeping its adequate financial profile despite the pressure on the asset management fees, and remain a global asset manager focused on Latin America.

LVAM is the asset management business unit of Larrain Vial SpA. (not rated), one of the largest financial services companies in Chile, which operates in investment banking, brokerage, and asset management. In our opinion, asset management is still an important activity for the holding company’s expansion plans. Also, LVAM benefits from its shareholder's, Consorcio Financiero S.A.'s, extensive customer base. Currently, LVAM has 41 mutual funds, 21 investment funds, and three SICAVs, and manages assets of approximately CLP3.1 trillion as of September 2017 (around $4.9 billion). LVAM's market share remains stable despite the strong competition in the Chilean fund industry due to the launching of new products and the highly experienced management. In this sense, by the end of August 2017 LVAM was the fifthlargest asset manager in the country with a market share of 5.8% (including mutual funds, investment funds, and SICAVs), compared with 5.6% at the end of 2016 and 5.7% at the end of 2015.

We believe that LVAM's business profile remains strong because the company has a wide range of product and customer mix that covers the different levels of risk/return and customers, which provides a diversified revenue flow and mitigates the risks associated with the customer base concentration. In 2017, the company continued to diversify its funds by innovation and through strategic partnerships in the domestic and international markets, in order to meet the investors’ needs amid robust competition. Within LVAM's product mix, the Chilean equity and fixed income funds, Latin American equity and fixed income funds balanced funds and Chilean money market stand out. Historically, LVAM has focused on retail, high net-worth, and institutional customers, which currently represent approximately 25%, 65%, and 10% of the company's assets under management (AUM), respectively. These figures were 23%, 69%, and 8%, respectively, for the same period in 2016. We expect institutional customers to increase their share of total AUM in the next 12-18 months after pension fund managers restarted operations with the company, and as it's likely to increase its presence in international markets.

LVAM has an adequate financial profile thanks to its large market position as a result of a consistent alignment of its strategy with its administrative, technological, and commercial resources. In this sense, as of Sept. 30, 2017, the asset manager's net earnings rose to CLP4.2 billion from CLP3.1 billion for the same period in 2016, mainly driven by higher AUM, which pushed up fees and commissions income. The latter partly compensate for the lower management fees, which are under pressure from competition. We believe the company's financial profile bolsters its asset management practices, given that LVAM has resources to support and continue investing in improving them.

LVAM's strategy is to become a benchmark player in Latin America's asset management industry for all types of global customers. We believe LVAM's general strategy is consistent with its resources amid a favorable operating framework for mutual and investment funds in Chile. Also, we positively assess the company's strategic planning process and the tools for it.

In our opinion, LVAM's operating structure follows very strong practices in terms of segregation of activities. Despite the changes in the past 12 months, the current management is composed of highly experienced professionals, with proven record in the financial assets management market that will contribute to the company's growth and development.

LVAM follows clear guidelines for building portfolios. The company's investment process is robust and with a well-defined investment philosophy for each strategy. We believe the company has a standardized investment process based on well-documented committees, which meet on a regular basis to assess business performance, investment strategies, risk management, and product performance. The committees don't hamper the decision making. As of September 2017, and in line with previous years, LVAM's performance has been stronger in most of its funds, compared to its domestic peers.

In our view, LVAM has a very strong and well defined control structure, in accordance with the volume of its operations. Its policies and processes are well established and documented. Risk management continues to play a central role in the investment decision-making process, with emphasis on credit, market, and liquidity risk controls. Also, LVAM has an independent compliance unit responsible for guaranteeing the integrity and transparency of the asset management processes in adhering to internal and regulatory rules.

In order to maintain its leadership in the funds industry, LVAM regularly invests in new technologies and in improving its processes and controls. In 2017, the asset manager completed its migration to a single technology platform, integrated the company's entire business cycle, from the front to the back-office, trading compliance, risks and performance analysis. Likewise, we believe LVAM has a clear contingency and continuity business plan.