Fitch Ratings has tupdated its Asset Manager Ratings methodologies for fund of hedge fund (FoHF) managers. Asset Manager Ratings provide investors with an independent assessment of an asset manager's vulnerability to operational and investment management failures.
These specific criteria subsets have been developed to incorporate, within the general Asset Manager Rating framework used by the agency to rate asset managers in various contexts, the distinctive features of FoHF managers resulting from their heavy focus on due diligence conducted for the selection of less liquid assets.
Following last week's announcement on the unification of ratings scale for Fitch's Asset Manager Ratings, all asset managers are now rated on a scale of 'M1' to 'M5', with 'M1' indicating the highest rating. This unified scale emphasises the common general framework and creates greater consistency and comparability across the range of rated asset managers and underlying investment approaches.
In response to the challenges facing asset managers in the current difficult operating environment, Fitch has been placing increased emphasis on an asset manager’s financial condition and business sustainability. Hence a low score on this measure would result in a low overall Asset Manager Rating. Fitch is coordinating its analysis of an asset manager’s financial condition with the agency’s Financial Institutions group, with a focus on financial sustainability. Ratings could be lowered or ‘capped’ should the financial condition of the rated manager or its parent company be of concern.
This update takes place as the current financial crisis has put an end to the past decade of rapid growth of the asset management industry which, at its peak, reached USD70tn of global assets under management (AUM). Estimates indicate that global AUM shrunk by approximately 20-25% in 2008, as a result of market value declines and investor redemptions. In addition, a major shift towards lower-risk, but also lower-margin, assets has been observed.
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These specific criteria subsets have been developed to incorporate, within the general Asset Manager Rating framework used by the agency to rate asset managers in various contexts, the distinctive features of FoHF managers resulting from their heavy focus on due diligence conducted for the selection of less liquid assets.
Following last week's announcement on the unification of ratings scale for Fitch's Asset Manager Ratings, all asset managers are now rated on a scale of 'M1' to 'M5', with 'M1' indicating the highest rating. This unified scale emphasises the common general framework and creates greater consistency and comparability across the range of rated asset managers and underlying investment approaches.
In response to the challenges facing asset managers in the current difficult operating environment, Fitch has been placing increased emphasis on an asset manager’s financial condition and business sustainability. Hence a low score on this measure would result in a low overall Asset Manager Rating. Fitch is coordinating its analysis of an asset manager’s financial condition with the agency’s Financial Institutions group, with a focus on financial sustainability. Ratings could be lowered or ‘capped’ should the financial condition of the rated manager or its parent company be of concern.
This update takes place as the current financial crisis has put an end to the past decade of rapid growth of the asset management industry which, at its peak, reached USD70tn of global assets under management (AUM). Estimates indicate that global AUM shrunk by approximately 20-25% in 2008, as a result of market value declines and investor redemptions. In addition, a major shift towards lower-risk, but also lower-margin, assets has been observed.
“As a consequence, the viability of many asset management business models is under considerable pressure, which leaves them more exposed and vulnerable to investment or operational failure that may result from staffing and cost reductions, changes in strategy or re-organisation.”, says Aymeric Poizot, Head of Fitch’s EMEA Fund and Asset Manager Rating Group.
To read the report in full, please click here
