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Fitch Affirms National Asset Manager Rating of HSBC Multimanager Funds at 'M1(bra)'.

RIO DE JANEIRO & SAO PAULO -- Fitch Ratings has today affirmed the 'M1(bra)' National Asset Manager Rating of HSBC Multimanager Funds (HSBC Multimanager), a 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 affirmation of HSBC Multimanager's rating factors in its strong integration with the group's global funds management area in the adoption of policies and controls; the benefit of the strong franchise of its parent, HSBC Holdings Plc. (HSBC Holdings, IDR 'AA', Outlook Stable); 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 albeit with a focus on hedge fund strategies.

The asset management activities are highly important for HSBC group, one of the major participants in this industry worldwide, with a volume of assets under administration of USD444 billion as of December 2010. HSBC as a group has a unit responsible for setting global policies and methodologies and for coordinating fund management activities globally. In addition to this support, Fitch notes that the manager relies on well-formalized and consistent risk and compliance controls and investment policies, with support from systems and committees to mitigate conflicts of interest and monitor processes and exposures, reducing the risks originated from the lean structure.

Fitch highlights that HSBC Multimanager has presented a lean structure and some executive team turnover, which may jeopardize its development in terms of funding or its processes and controls. Out of the five existing professionals, two were replaced between 2010, including the chief executive officer, who went to the HSBC Fund Management distribution area. Nevertheless, the agency highlights that the institutionalized nature of HSBC Multimanager's investment and administration process mitigates the impact of turnover on the investment process and minimizes the risk of reliance on key individuals.

Fitch also notes that due to the process of funds of funds management consolidation in the industry, as well as the national investor's need for higher sophistication, this segment is challenged to present less volatile funding, especially during periods of higher macroeconomic uncertainty and risk aversion.

The HSBC Multimanager has recorded strong growth in the volume of funds under administration (66% in 2009 and 24% in 2010), due to better structuring of the area, a more experienced team, on top of a strong local economic growth in 2010. Fitch considers the growth expected for 2011 (20%) feasible, even in light of strong international turbulence and the increased rate of tax on financial operations (IOF), from 2% to 6%, in December 2010, in view of the 8.4% growth in first quarter 2011, particularly with private and institutional clients.

After the satisfactory performance in 2010, when it ended up in the second quartile as compared to peers and above the benchmark, the multimarket fund's performance fell to the third quartile in the first five months of 2011, staying below the benchmark, due to bad performance in some assets. This period saw increased participation in macro funds (42% of the volume under management in December 2010 and 26% in 2009) in an attempt to capture trend movements while decreasing participation in fixed income funds, albeit maintaining a relevant participation in these funds (39% and 52%). The balance was invested in arbitrage strategies (10% and 18%) and equities (9% and 4%). The equity funds, in turn, became to first quartile and above the benchmark, due to largest exposure in dividends and value strategies.

HSBC Multimanager was created in 2000 and is the unit responsible for the management of funds of funds from third parties of HSBC Gestao de Recursos. The latter is a department which belongs to HSBC Brasil, the fourth largest private bank in the country 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 sixth largest asset manager in Brazil, with 4.9% of market share and assets under management (AUM) of BRL83 billion as of December 2010. HSBC Multimanager managed BRL4.9 billion of third party funds, especially private clients and institutional investors and corporates.

The 'M1(bra)' rating is assigned to asset manager operations which show the very lowest vulnerability to operating and investment management failures. According to the applicable criteria report 'Reviewing and Rating Asset Managers', dated Aug. 13, 2010, in conjunction with 'National Scale Asset Manager Rating Criteria', dated July 2, 2010, 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

Selection of Managers and Funds: 1.75

Portfolio and Risk Management: 1.75

Investment Administration: 1.25

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'.

Applicable Criteria and Related Research:

--'Reviewing and Rating Asset Managers' (Aug. 13, 2010);

--'National Scale Asset Manager Rating Criteria' (July 02, 2010);

--'Reviewing and Rating Fund of Hedge Fund Managers' (June 22, 2009).

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

National Scale Asset Manager Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=536665

Reviewing and Rating Asset Managers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547947

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
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Date:Jul 12, 2011
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