NEW DELHI & SINGAPORE--(BUSINESS WIRE)--Link to Fitch Ratings' Report: Exposure Draft: Investment Management
Quality Ratings (Assessing Investment Processes and Resources for
Traditional and Alternative Strategies)
Fitch Ratings has published an exposure draft for its new, proposed global Investment Management Quality Ratings criteria. The ratings are not credit ratings but rather are a qualitative and quantitative assessment of an asset manager's investment process and resources relative to one or more investment strategies and objectives. The ratings would be applied to traditional as well as alternative investment managers (IMs) and strategies such as private equity and real estate.
The ratings reflect Fitch's independent qualitative and quantitative assessment of an investment manager's investment and operational capabilities in managing one or more investment strategies. Investors may use investment management quality ratings as one input into assessing the degree of 'fiduciary risk' when selecting traditional and alternative investment managers. In this context, Fitch adopts a commonly accepted definition of 'fiduciary risk' as risk that accounts for the possibility of an agent not performing optimally in the beneficiary's best interests.
The investment management quality rating criteria has four key assessment areas or pillars: 1) investment process; 2) investment resources; 3) risk management; and 4) company, governance & client servicing.
--The Investment Process pillar reflects the importance of a high-functioning, repeatable investment process in delivering consistent returns relative to a clearly defined set of investment objectives. It focuses on qualitative factors as well as a quantitative analysis of historical performance.
--The Investment Resources pillar focuses on the experience and stability of staff in the key functional areas of investment management and risk management. In addition, it considers the strength of front-office workflow processes, technology and support functions in supporting the investment process.
--The Risk Management pillar considers market, liquidity and credit/counterparty risk, with an emphasis on downside risk protection. There is a focus on risk management independence and influence, the appropriateness and robustness of the risk metrics, how monitoring of key risk limits impacts investment management via a well-developed feedback loop, downside performance relative to appropriate benchmarks, and compliance risk.
'Company' focuses on the investment management company's financial stability, experience, and strategic commitment. 'Governance' focuses investor protections, third party service providers, valuations and controls, and proper incentive setting. 'Client servicing' considers the timeliness, transparency and accessibility of reporting, and whether the investment offering terms are appropriate relative to the investment strategy.
The ratings are expressed on a five-point scale from Excellent to Weak and provide a relative opinion of an investment manager's ability to meet a stated investment objective. Fitch can apply its investment management quality rating criteria at the level of the investment manager, at the level of an individual fund/mandate, or where appropriate at the investment strategy/platform level.
If adopted, the criteria will fully replace the four existing criteria reports listed at the bottom of this release that are currently used in various markets to assign ratings to funds, investment mandates and investment managers. Approximately 180 existing asset management and fund ratings globally would be re-rated under the new criteria and scale.
Fitch is actively seeking comments on this Exposure Draft between now and the end of the comment period, Nov. 30, 2016. Comments can be submitted in writing to IMQRcriteria@fitchratings.com
'Exposure Draft: Investment Management Quality Ratings' is available at 'www.fitchratings.com' or by clicking on the above link.
Additional information is available at www.fitchratings.com.
Existing criteria that Fitch proposes to replace with global Investment Management Rating Criteria:
Asset Manager Rating Criteria, 6 May 2014
Fund Quality Rating Criteria, 16 September 2014
Criterios de Calificacion de las Sociedades de Inversion Especializadas de Fondos para el Retiro (Siefores), 10 October 2014
Metodologia Calificacion de Fondos de Inversion, 13 March 2015
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