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Fitch: European Asset Managers Survey Uncovers Range of Front Office Practices
September 18, 2014 / 10:43 AM / 3 years ago

Fitch: European Asset Managers Survey Uncovers Range of Front Office Practices

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 'Front Office' Best Practices in Investment Management here PARIS/LONDON, September 18 (Fitch) Fitch Ratings says results from its survey of European asset management 'front office' investment processes confirm that one size does not fit all in investment management. Fitch recently surveyed 30 distinct investment processes involving EUR1.8trn of assets under management to identify whether firms adhered to 'best practices' as outlined in our rating criteria for asset managers and funds. The survey covered: -Staffing and organisation, including functional presence/role of a Chief Investment Officer (CIO) -Research resources and degree of specialisation/formalisation -Investment decision-making processes -Portfolio management and monitoring In terms of optimal size, 'best practice' means achieving the optimal fit between the task at hand - meeting (risk-adjusted) performance targets - and the resources available. This will vary by asset class and strategy, among others, as was confirmed by survey findings. Resources alone are insufficient: a rigorous investment process plays an equally important role. Most surveyed firms have a CIO or functional equivalent; in the majority of cases (53%) the role is more strategic in nature, as opposed to hands-on investment decisions (36%) and portfolio management (11%). Fitch views a second layer oversight on investment research and decision-making, typically by a CIO, as an investment management 'best practice'. Two-thirds of surveyed managers have dedicated research teams and three quarters have dedicated trading desks. The level of assets under management (AUM) is the determining factor, as virtually all companies with more than EUR100bn of AUM have these dedicated functions. On the other hand, smaller managers or those that oversee simpler instruments and asset classes are less likely to have dedicated analysts/traders. Fitch's criteria emphasise the presence of dedicated and distinct investment resources (research and trading) as a best practice. In Fitch's sample, broader teams are most often seen in strategies involving a large investment universe covering various markets and asset classes. Conversely, more concentrated and highly focused teams are mostly seen in specialised managers. Achieving an appropriate balance between specialisation staff and flexibility is a best practice. Another best practice is to have a variable compensation scheme for key investment decision-makers based on quantifiable objectives that are aligned with investors' interests. In only half of the sample, analysts' compensation is a function of a fund's performance, whereas it is, at least partially, for more than 90% of portfolio managers. Seventy per cent of surveyed asset managers produce full proprietary research. The remaining 30% rely on a combination of proprietary, internal research and external third-party research. Fitch considers consistently documented and communicated analytical opinions and recommendations best practice. Fitch considers an investment committee or comparable mechanism a best practice because of the discipline it imposes. This is the case for slightly more than half of Fitch's samples. At more than half of the managers in Fitch's sample, performance attribution analysis and risk management reports are provided to the front-office at least on a monthly basis. Frequent and formalised monitoring process, distinct from decision-making with proper and independent oversight, constitutes best practice. The special report, 'Front Office' Best Practices in Investment Management', published 18 September 2014, is available on www.fitchratings.com Contact: Francois Vattement, CFA Associate Director +33 1 44 29 92 75 Fitch France S.A.S. 60 rue de Monceau Paris 75008 Alastair Sewell, CFA Senior Director +44 203 530 1147 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria and Related Research: Asset Manager Rating Criteria here Fund Quality Rating Criteria here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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