Asset Management Ratings
Fitch publishes ratings of asset management activities for the use of institutional investors. The agency issues Asset Manager Ratings to provide investors with an independent assessment of an asset management organization’s vulnerability to operational and investment management failures.
Among others, these failures can take the form of:
mismanaged risk budget;
excessive counterparty risk taking;
fund closure and/or fire sale due to miscalibrated liquidity or asset liability risks;
illegal or unethical market practices (price manipulation, unfair dealing, insider trading);
poor investment oversight leading to major style drift or run-off portfolios;
inconsistency in investment decision making leading to material financial losses;
valuation, settlement/payment or subscription/redemption errors;
miscommunication; and
business disruption (for operational or financial reasons).
The ratings are issued on a five-tier scale of 'M1' – 'M5' with 'M1' being the highest rating. The agency may further differentiate ratings by plus (+) and minus (-), as warranted by the scores achieved. The agency may change or withdraw a company's Asset Manager Ratings at any time based on information garnered from reliable sources, the agency's surveillance data and regular updates provided by the asset manager, or because of lack of information provided by the manager.
The agency assigns National Asset Manager Ratings to asset management companies operating in countries where, for some rating factors, a comparison with international standards is irrelevant. Those factors are evaluated taking into consideration local specificities. National Asset Manager Ratings, which display a special identifier for the country concerned, e.g. 'M3(mor)' for Morocco, are comparable only to National Asset Manager Ratings assigned in the same country.
Asset Manager Rating Definitions
Level 1 Rating — 'M1' – Superior
Asset manager operations demonstrating the lowest vulnerability to operational and investment management failure.
Level 2 Rating — 'M2' – Strong
Asset manager operations demonstrating low vulnerability to operational and investment management failure.
Level 3 Rating — 'M3' – Adequate
Asset manager operations demonstrating limited vulnerability to operational and investment management failure.
Level 4 Rating — 'M4' – Weak
Asset manager operations demonstrating elements of vulnerability to operational and investment management failure, including heightened risks regarding the match between the organization’s current and near-term competencies and its ability to adequately meet its business and investment management objectives.
Level 5 Rating — 'M5' – Deficient
Asset manager operations demonstrating material vulnerability to operational and investment management failure. The organization may have deficiencies in the infrastructure required to meet its business and investment management objectives. Available financial information disclosed to Fitch Ratings may indicate uncertainty as to the organization's ability to remain commercially viable over the following 12 months or be insufficient to form a judgment on financial condition. Other management, risk control or operational practice deficiencies may be indicated.
Limitations of the Asset Manager Rating Scales
Specific limitations relevant to the rating scales applied to asset managers include:
The Asset Manager Ratings relate to specific operational units and specific geographies within an asset manager — they do not necessarily relate to legal entities.
The ratings do not predict a specific likelihood of asset manager failure over any given time period.
The ratings do not opine on the market value of any asset manager's investments.
The ratings do not opine on the liquidity of the asset manager's investments or that asset manager's own securities.
The ratings do not opine on the suitability or otherwise of an asset manager for investment or any other purposes.
The ratings do not opine on any quality related to an asset manager's business, operational or financial profile other than an observational opinion on its operational strength in a limited number of areas.
The ratings do not opine on the investment strategies implemented by the asset manager.
Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the reader's convenience. Readers are requested to review the section Understanding Credit Ratings — Limitations and Usage for further information on the limitations of the agency's ratings.
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