Research Update: LarrainVial Asset Management Administradora General de Fondos S.A. 'AMP-1' (VERY STRONG) Classification Affirmed

This English version is provided on request and reflects the translation from the original one published only in Spanish by S&P Global Ratings on October 31, 2023. In case of any discrepancy between this English version and the original in Spanish, the Spanish version shall apply.

On Oct. 31, 2023, S&P Global Ratings affirmed the 'AMP-1' (Very Strong) classification on LarrainVial Asset Management Administradora General de Fondos S.A. (LVAM).

Our 'AMP-1' (Very Strong) classification is based on LVAM's strong business profile, give that it's one of the leading independent mutual and investment fund managers in Chile with diversified products for a broad client base, covering various levels of risk and return. These factors support the diversification and provide more stability to the company's income stream. As of September 2023, LVAM's market share was 5.8%, maintaining its position as the fifth-largest fund manager in the Chilean market, with assets under management of 4.9 trillion Chilean pesos (CLP) (equivalent to $5.45 billion), including mutual funds, investment funds, and variable capital investment companies (SICAVs) with shares of 5.8% and 5.4% at the end of 2022 and 2021, respectively.

The company adhered to its growth plan outside Chile by strengthening its offering of international funds and off-shore platforms, which also widen its client diversification, particularly of those outside Chile exposed to different economic cycles. In addition, LVAM continued to work on new strategic commercial alliances and to consolidate existing ones for product development and distribution. Moreover, the consolidation of its market share is also because, since the beginning of 2022, it has fully resumed operations with local pension fund administrators (AFP, by its acronym in Spanish). LVAM still faces the challenge of continuing to grow in a highly competitive environment, both from administrators belonging to large banks and from the independent ones amid high interest rates.

The classification also considers the industry's and LVAM's challenges going forward, including uncertainty over the direction of local policy, as the lack of consensus between the legislative and executive branches has slowed the passage of economic policies to drive economic growth. The latter, together with high interest rates, continued increase risk aversion, which has deepened the changes in the composition of the fund industry and the preference for money market funds (with lower average fees) or time deposits. This has benefited banks' funds managers. S&P Global Ratings.

The uncertainty also stems over the pension reform. However, we believe that if the reform maintains the savings-based pension system, asset managers will have the opportunity to channelpart of savings to their products. LVAM also faces the challenge of improving its profitability amidpressured margins and inflation-indexed and foreign-currency-linked administrative expenses,following its focus on international growth.

In addition, the classification continues to reflect LVAM's highly experienced management team with a proven track record in the financial asset management market, which will contribute to its growth and development. Also, LVAM has a clear corporate strategy, with a greater focus onproducts that offer higher profitability for its clients and diversification into foreign currency and/or international assets, along with very solid practices in relation to controls and operations.

We believe that its investment management process is well structured, risk managementcapabilities are very strong and continue to consolidate with a new centralized risk control structure for all asset management units of the LarrainVial group, in addition to its good principles trustees.

LVAM is part of the fund management business unit of Larrain Vial SpA (not rated), one of thelargest financial services companies in Chile, which operates in investment banking, stockbrokerage, and asset management businesses. In our opinion, asset management continues to bean important activity for the group's expansion plans. In addition, LVAM benefits from shareholderConsorcio Financiero S.A.'s extensive customer base. LVAM currently has 38 mutual funds, 24 investment funds, and 10 foreign-domiciled funds, including five funds in Luxembourg SICAVs, aspart of its wider international product offering.

The company maintains its strategy of expanding its growth outside Chile. As a result, in the firstnine months of the year, mainly Luxembourg SICAV funds, together with those domiciled in theCayman Islands, continued to record significant growth due to their solid performance, which hasattracted institutional and other clients. As a result, Latin American equity funds increased theirshare of total assets under management to 29% from 23% a year ago.

Source: S&P Global Ratings