Fitch Ratings said today it is placing more emphasis on an asset managers financial condition and business sustainability when assigning ratings to companies in that sector.
The change reflects the challenging environment the industry will be grappling with over the coming years, according to a news release.
The release also said Fitch has decided to provide unified ratings for money managers, ranging from M1 for firms least at risk of operational and investment management failure to M5 for those most at risk. It will abandon the practice of giving segment-specific ratings, such as FoHFM1 for the strongest hedge fund-of funds managers.
Aymeric Poizot, head of Fitchs EMEA Fund and asset manager rating group, said as a result of the more than 20% plunge in global assets under management in 2008 and a major shift toward lower-risk, lower-margin strategies, 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 reorganization.
In a telephone interview, Mr. Poizot said many managers that relied on alternative strategies, which by some estimates accounted for 50% of industry revenue before the financial crisis struck, will have to reinvent themselves.
Many absolute-return products that havent been closed down could take years to recover, and such challenges will leave Fitch paying even more attention to the business models of money management firms when assigning ratings, he said.