Fund & Asset Manager Rating Group

Transcription

1 Master Criteria Reprt Asset Managers/Glbal Scpe This reprt updates the fllwing criteria reprts: Reviewing and Rating Asset Managers (August 2010) Natinal Scale Asset Manager Rating Criteria (July 2010) Revisión y Calificación de Administradres de Activs (August 2010) Metdlgía de Calificación de Administradr de Activs a Escala Nacinal (July 2010) Reviewing and Rating Credit Asset Managers (July 2009) Reviewing and Rating Fund f Hedge Fund Managers (June 2009) Reviewing and Rating Real Estate Asset Managers (June 2009) The rating scale is ntably changed frm a numerical scale f M1 t M5 t a descriptive scale as presented in appendix A. Fcus n Operatinal Assessment: Fitch issues Asset Manager Ratings t prvide investrs and ther market participants with an independent assessment f an asset manager s investment and peratinal platfrm relative t institutinal investrs. While this assessment includes cnsideratins n the current financial standing and near-term sustainability f rated asset managers, Asset Manager Ratings are nt slely an evaluatin f a manager s financial cnditin and shuld nt be cnfused with Fitch s credit ratings. These criteria can be applied t asset managers managing funds r mandates r prviding investment advisry in areas such as stcks, bnds, prperties, lans r funds f funds. Key Analytical Drivers Five Rating Pillars: Fitch s Asset Manager Rating methdlgy, which was first develped in 1998, is designed t systematically capture, evaluate and reprt n the key attributes f an investment manager s peratinal and investment platfrm by fcusing n five key areas, and 30 sub-categries. The five key areas reviewed are: 1) cmpany, 2) cntrls, 3) investments, 4) peratins, and 5) technlgy. The utput is a fcused analysis that results in clear, transparent rating cnclusins and a detailed prfile f the rated asset manager. Cmpany: Fitch assesses the asset manager s crprate set up with a fcus n sharehlder resurces and cmmitment, business and financial sustainability, experience, gvernance, independence and reputatin f key third parties, staffing, including key man risk and functinal segregatin f duties. Cntrls: Fitch evaluates the verall cntrl framewrk f the manager and, mre specifically, cntrls relative t cnflicts f interest and limitatins specified by regulatin, cntractually, and/r spelled ut in prspectuses/ffering dcuments. Additinally, Fitch reviews restrictins and related prcedures with respect t sales, trade executin and prtfli valuatin. Fitch als reviews the framewrk fr identifying, measuring, managing and reprting investment risks. Related Criteria Fund Quality Ratings Criteria (September 2011) Investment Manager and Alternative Funds Criteria (December 2012) Analysts EMEA and Asia Pacific Aymeric Pizt, CFA, CAIA aymeric.pizt@fitchratings.cm Latin America Davie Rdriguez, CFA davie.rdriguez@fitchratings.cm Nrth America Rger Merritt rger.merritt@fitchratings.cm Investments: Fitch analyses the quality and suitability f investment resurces (staffing and access t infrmatin) and the verall discipline f frnt ffice peratins. Specifically, Fitch fcuses n depth and experience f prtfli management staff, access t infrmatin and research t supprt investment decisin-making, clearly defined investment bjectives and clearly articulated limits, and trading resurces. Fr an investment perfrmance riented assessment, investrs shuld refer t Fund Quality Rating criteria and research. Operatins: The evaluatin f middle and back Office functins cvers all relevant wrkflws, including trade cnfirmatin and supprt, prtfli recrd keeping, crprate actins, recnciliatins and valuatin and fcus n the peratinal platfrm s flexibility, scalability and security. Criteria als apply t client servicing, including the quality and timeliness f investr reprting. Technlgy: Fitch s assessment f an asset manager s technlgy fcuses n IT resurces, the quality f systems, integratin, data management and verall security. Ian Rasmussen ian.rasmussen@fitchratings.cm 22

2 Methdlgy Overview Fcus n Operatinal Assessment A Fitch Asset Manager Rating invlves an in-depth analysis f an asset manager s investment and peratinal platfrm, fcusing n five cre pillars cmpany, cntrls, investments, peratins, and technlgy. The ratings and supprting research prvide a transparent benchmark fr managers against the applied by institutinal investrs. Institutinal investrs and their intermediaries may use Asset Manager Ratings t cmplement their analysis f asset managers in terms f cmparability and suitability. Institutinal Standard Benchmarking Asset manager ratings are assigned n a descriptive scale based n Fitch s assessment f the manager s investment and peratinal platfrm. The assessment is largely pass/fail, as the minimum hurdle fr achieving a rating is set relatively high in rder t cnfrm t the expectatins f institutinal investrs glbally and t weed ut weaker players. Asset managers that are unable t demnstrate that they meet institutinal fr the industry will nt receive a rating. Managers that are less well-established but have a gd platfrm that meets institutinal fr the industry may be rated Gd Standards. A rating f Standards may be assigned t an established manager with a strng peratinal set-up and investment platfrm that, in Fitch s pinin, exceeds industry fr institutinal investrs. The est Standards designatin is reserved fr managers that are deemed t be best in class. Managers that fail t maintain minimum institutinal may have their ratings lwered t Belw Standards r Inadequate and subsequently withdrawn. The ntin f institutinal as a benchmark is relative t the market in which the asset manager perates. Fr asset managers rated under a natinal scale, the institutinal applied are dmestic. Brad Applicatin Asset Manager Ratings (AMRs) may be assigned t a diverse set f managers ffering a wide range f investment strategies, including small as well as larger players, diversified and specialist managers, and managers perating glbally r in dmestic markets. AMRs cmplement ther analytical fferings in the market. Fr example, third-party audit services may fcus slely n the existence and dcumentatin (i.e. SAS70 r ISAE3402) f middle- and back-ffice cntrls with little analysis f the manager s verall investment platfrm and peratinal capabilities. Others may fcus slely n benchmarking the manager s risk-adjusted returns against ther managers and benchmarks, regardless f the rbustness f the manager s infrastructure, investment prcesses and the sustainability f its franchise. Where pssible, the AMR leverages ff existing materials maintained by managers, such as standard questinnaires/rfp dcuments, audited financials and internal investment/risk management/ cmpliance/and internal audit dcumentatin. A review f these materials is supplemented by an n-site review, including meetings with key staff in relevant functinal areas. The analysis underpinning the rating assessment is presented in a transparent, in-depth research reprt n the manager. AMRs may be assigned standalne r in cmbinatin with ther ratings, such as Fund Quality Ratings and traditinal credit ratings. Five Scring Categries The five pillars underpinning the manager assessment cmpany, cntrls, investments, peratins, and technlgy prvide a hlistic view f the manager s capabilities and sustainability, especially during perids f stress. 2

3 In an effrt t apply its methdlgy as cnsistently as pssible and minimise subjective variatins in evaluating asset manager characteristics, Fitch uses a scring apprach t make its qualitative determinatins. Based n the typical attributes described in the sectins belw, each factr within Fitch s analysis is categrised as est Standards, Standards, Gd Standards, Belw Standards r Inadequate Standards. Fitch highlights that these attributes are dynamic and may evlve ver mid t lng term as practices changes in the asset management industry. In determining the final screcard rating, the level and distributin f the scres are cnsidered with a particular fcus n weakest links and the materiality f these utliers. Fr example, t achieve est Standards, the majrity f the elements cnsidered shuld be individually scred at this level and n material weaknesses exist. Even if mst elements were scred est Standards, the verall rating culd be adjusted dwnward if a material weakness existed. Furthermre, cnsistent with the minimum hurdle apprach mentined abve, n individual factr scre shuld be Belw Standards fr ratings abve Gd level. The screcard serves as an imprtant tl in the rating prcess, since it prmtes cnsistent applicatin f the rating methdlgy. Hwever, like any tl r mdel, screcards are nt perfect and Fitch des nt, therefre, rely slely n the screcard as qualitative factrs fr each individual asset manager are als cnsidered. These qualitative factrs cmbined with judgements prvided by members f the rating cmmittee are cmbined with the screcard results in arriving at the final rating, guided by the rating definitins fr each f the five rating categries. Fitch recgnises that, due t differences between asset management rganisatins in terms f gegraphic cverage, size, asset class fcus, client types and perating strategy, the applicatin f the rating methdlgy requires careful cnsideratin f the cntext in which it is applied. See in appendix C, hw the specifics f prperty investing are captured in the screcard. Specifically, while the brad areas f assessment are the same fr all cuntries, the typical attributes expected at each rating level vary between internatinal and natinal ratings. In cuntries where natinal ratings are assigned, the typical internatinal attributes listed in the table belw may be adjusted t reflect lcal practices and lcal institutinal. Areas f Assessment Cmpany Figure 1 Typical Rating Attributes Sharehlding & Financial Standing Gd est Surce: Fitch Identifiable sharehlders with cmmitment Prfitable r well supprted business Equity/AUM rati abve regulatry minimum Cash balance cvering expenses fr the near term The level f debt des nt pse risk t the n-ging sustainability f the manager. N reliance n a single client and the largest client, typically, represents less than ne third f firm's ttal assets regular sharehlders' investment in the business wuld stay prfitable despite utflws under mild stress Equity/AUM rati well abve regulatry minimum sufficient cash n hand t meet unexpected cntingencies, debt service payments debt/ebitda (typically 3.0x r less) if leveraged Lng standing financially strng sharehlders with n anticipatin f change Can suffer utflws under severe stress and stay prfitable sufficient cash n hand t meet unexpected cntingencies, debt service payments and/r perating expenses in a perid f severe stress debt/ebitda (typically 1.5x r less) if leveraged highly diversified asset and client base by type and gegraphy 3

4 Sharehlding & Financial Standing: Fitch assesses the asset manager s sharehlder cmmitment, financial flexibility and business sustainability. Fr this, it reviews, amng thers, the asset manager s relatinship with its parent, financial statements with a particular fcus n prfitability and wrking capital requirements, client base, prduct range, and ultimately its business resilience under stress scenaris n assets under management. Experience: Fitch determines the length and quality f experience that the cmpany and its key staff have demnstrated n its cre markets, acrss asset classes, investment strategies, client types and gegraphy. Factrs cvered include the manager s years in business and whether there are any material reprts f questinable activity, market presence and evlutin in terms f asset gathering capacity and develpment f client and prduct base. Gvernance and Independence: The agency assesses the level f independence and f gvernance f the asset management cmpany and its investment vehicles. The review encmpasses the crprate and fund gvernance bdies, regulatry and third party (ie. custdian, administratrs, auditrs ) versight and cntrls, activities cnducted with grup affiliates and relatinship with external service prviders. Figure 2 Typical Rating Attributes Experience, Gvernance, Independence Gd est Surce: Fitch Lengthy/clean persnal experience f key staff with cmmn histry AM has a well set up gverning bdy, is regulated and subject t at least ne thirdparty surveillance Investment vehicles are prperly regulated, with segregatin f assets, trustee duties and legal dcumentatin The custdians, administratrs and ther key third parties are well-recgnised, independent third parties. Typically mre than three years f crprate existence withut reprts f material questinable activity r gvernance failures Key staff have experience thrugh market cycles in cre cmpetencies Well thught and cntrlled crprate strategy Clear cut rganisatin with respect t affiliated activities Investment vehicles have well identified and set up gverning bdies and plicies Lw turnver amng third parties Lng standing experience in servicing different client types thrugh several market cycles Existence f critical size in cre cmpetencies Subject t multiple external audits beynd regulatry bligatin Existence f active minrity sharehlders and/r independent bard members with access t infrmatin t fulfil their duties Pled vehicles have gverning bdies with independent directrs and infrmatin/tls t fulfil their duties Investment mandates versight is strng with peridic cmmittees/bards Staffing: The main areas f assessment f staffing are rganisatinal structure, individual and teams skillset and experience with a particular fcus n senir staff, turnver, capacity, key persn dependency and cmpensatin. 4

5 Figure 3 Typical Rating Attributes Staffing Gd est Surce: Fitch Cntrls Well identified and distinct department/teams fr frnt ffice and peratins respectively At least tw seasned prfessinals (typically >15 years f experience) at tp management level with key persn risk manageable Backgrund checks (fr new ratings) shws experienced/trustable individuals Cnsistent cmpensatin plicy with adequate incentivisatin f emplyees Well identified and distinct department/teams fr business and cntrls Typically 3-4 key staff at tp management level with clear scpe and high level f stability Secnd layer f managers with adequate level f stability and strng backgrund Limited key man risk Variable cmpensatin based n quantifiable bjectives aligned with third party investrs Additinal separatin f functins (eg. Trading/PM, internal cntrl/risk management) Experienced/legitimate/stable senir team with typically CEO, CIO, COO, CRO, CTO Clear cmpensatin plicies verseen by cmpensatin cmmittee and apprpriately aligned with third party investrs. Senir staff are interested being invested in the funds r cmpany Overall Risk Cntrl Framewrk: Fitch evaluates the verall cntrl framewrk f the cmpany, reviewing the existence f first (eg. prtfli managers), secnd (eg. internal cntrl) and third level f cntrls (eg. internal audit), dcumentatin f prcedures and cntrls, rganisatin f cntrl and risk functins. The assessment f the cmpany s peratinal risk management framewrk is based, amng ther factrs, n the cmpany-wide set up fr mnitring and reprting peratinal risk, frequency and impact f errrs, missins and litigatins as well as versight and cntrl f third party service prviders. Figure 4 Typical Rating Attributes Overall Risk Cntrl Framewrk Gd Dcumentatin f key risks, prcedures and cntrls Cmpetent, independent risk and cntrl functin(s). Mnitring f peratinal lsses with histric lw impact Service Level Agreement (r equivalent) with third parties Risk and cntrl cmmittees, escalatin prcedures with evidence f effectiveness. Well-resurced, specialised, and stable risk and cntrl functins Risk managers with strng market backgrund Reprting f incidents and near-misses with lw frequency and fllw up prcedures. Key perfrmance / Risk indicatrs and day t day interface with third parties. est Surce: Fitch Frmal multi-layer cntrl framewrk Risk and Cntrl functins represented at executive level. Risk mapping maintained, based n self assessment Extremely lw frequency and impact f incidents, cmprehensively tracked. Regular and frmal reviews f third parties and detailed perfrmance / Risk indicatrs. Cmpliance and Cntrls: Fitch reviews the rganisatin f cntrls ver key prcedures such as sales, trade executin and prtfli valuatin. Mnitring f adherence t regulatry and cntractual restrictins, including pre and pst trade cmpliance, are als cvered. 5

6 Figure 5 Typical Rating Attributes Cmpliance and Cntrls Gd Objective brker selectin, frmal fee plicy, ability t challenges executin prices. Peridic pst trade cntrls n key regulatry and cntractual limits by staff independent frm frnt ffice with escalatin Prcedures fr fair allcatin f rders, persnal trading, insider trading and affiliated activities Systematic cntrl n quantity and shrt selling Identified independent pricing surces and dcumentatin Knw Yur Client plicy fr distributin est Surce: Fitch Enfrcement f eligible brkers list and frmal cntrls n vlumes and executin quality, Autmated pst trade cntrls n mst limits Pre trade cntrls n key limits Frmal cntrls n fair allcatin, persnal trading and cnflicts with affiliates Frmal pricing plicy with cmprehensive cntrls Cmprehensive Client take n prcedures and sales training Detailed best executin analysis and strategy t ptimise executin, extensive use f STP trading (where apprpriate) level f custmisatin/cverage f cnstraints and early warning flags Strict versight r restrictins n persnal trading, additinal cntrls n frnt running between prtflis r desks, intraday trading, prtfli turn ver Pricing cmmittee, in-depth surcing, detailed mdel pricing Independent review f all marketing cmmunicatin Investment Risk Management: Fitch reviews the enterprise-wide framewrk fr identifying, measuring, managing and reprting investment risks (market, liquidity and cunterparty risk), with a particular fcus n secnd-level f cntrls. The evaluatin f market risk mnitring fcuses n regulatry requirements and generic key risk metrics. Liquidity risk management is assessed in an asset and liability cntext. Cunterparty risk review cvers the selectin f cunterparty and the mnitring f aggregated credit expsure relative t cmpany-wide limits. Figure 6 Typical Rating Attributes Investment Risk Management Gd est Surce: Fitch Key market risk metrics peridically mnitred t check cnsistency with investment strategy and bjectives Identificatin and mnitring f less liquid assets acrss prtflis fr purpse f pricing and liquidity management Clear plicies and well defined limits n investment prtflis leverage Selectin/mnitring f cunterparties using bjective criteria Detailed internal market risk expsure limits n each prtfli with regular/autmated mnitring and prtfli reviews with risk and senir management Clear limits n expsure t less liquid assets in prtflis Practive management f funding risk with diversificatin f financing and peridic review f terms and cnditins Enfrcement f eligible cunterparty list and cntrls/limits n expsures and tenrs Onging stress testing, cmprehensive ex-pst and ex-ante market risk breakdwns, practive risk versight and budgeting Detailed asset liability mismatch stress tests and liquidity risk indicatrs Stringent cllateral practices, standard agreements in place with all cunterparties Investments Resurces and Discipline: The analysis f the investment peratins fcuses n investment resurces relative t the typically applied by institutinal investrs (staffing and access t infrmatin) and verall discipline f the prcess acrss prtflis. Fr a cmprehensive assessment f a specific investment prcess and hw this influences riskadjusted perfrmance, Fitch uses its Fund Quality Rating criteria (see Fund Quality Ratings Criteria, published 19 September 2011). 6

7 Figure 7 Typical Rating Attributes Investments Gd est Surce: Fitch Operatins Clear prtfli management respnsibilities with back-ups, staffing depth cnsistent with strategy, cverage and number f prtflis Access t sell side research and market data, gd cverage f investment universe Clearly defined limits and investment bjectives Existence f peridic investment cmmittees (infrmatin sharing and/r decisin making) Prtfli perfrmance regularly analysed at Frnt Office Experienced PMs with gd level f supprt (trading, assistants, quantitative research) allwing PMs fcus Lw staff turnver In-huse research mem and mdels, extensive cverage f the universe Clearly defined surces f perfrmance Dcumented and cmprehensive inputs t decisin making Demnstrated ability t analyse perfrmance and take crrective actins. ly experienced PMs with prven track recrd. Dedicated trading resurces (desks, electrnic trading) Multiple and riginal surces f infrmatin, in-depth prprietary research Detailed term sheets listing investment guidelines with demnstrated adherence Disciplined buy and sell prcess Frmal prtfli reviews and dcumentatin f investment decisins Middle Office and Reprting: The evaluatin f middle and back ffice functins cvers all relevant wrkflws, including trade cnfirmatin and supprt, prtfli recrd keeping, crprate actins, recnciliatins and valuatin. Fitch als reviews investr reprting and cmmunicatin t frm an pinin n its frequency, timeliness and quality f cntent. The ability t meet specific client requests thrugh custmised prtfli set up r slutin is als cnsidered. When an asset manager has utsurced its middle ffice t a third party prvider, the analysis fcuses n the quality, frmalisatin and level f service prvided t the asset manager. Figure 8 Typical Rating Attributes Operatins Gd Vlumes and cmplexities cmmensurate with peratinal resurces Scalable and secured middle ffice prcesses Clear prcedure fr prtfli valuatin Ability t adapt t client impsed set-up (eg. structure, custdian) Investr reprting prvides gd, transparent verview, available under standard peridicity and delays Experienced and specialised middle ffice staff. Straight thrugh prcessing fr mst prtflis/instruments with daily recnciliatin. Autmated price aggregatin fr valuatin Prven experience in managing dedicated prtflis Reprting shwing market sensitivities, detailed breakdwn, perfrmance analysis under flexible frmats Dedicated staff fr client servicing est Surce: Fitch Very stable and highly technical team with refined specialisatin Autmated prcessing f crprate actins, prxy vting, cllateral management Seamless wrkflw fr NAV calculatin/validatin/disseminatin Fully fledged custmisatin capabilities Reprting shwing detailed evlutin f risk indicatrs, high degree f custmisatin, Glbal Investment Perfrmance Standards (r equivalent) cmpliance fr institutinal mandates 7

8 Technlgy IT Resurces: Fitch reviews the resurces in terms f dedicated staff and technlgies available fr infrastructure, applicatin supprt and develpment, prject and change management. Integratin and Data Management: Fitch cnsiders the degree f integratin, cverage and scalability f the databases. The review als cvers the level f integratin achieved between internal systems and external applicatins frm data prviders, administratrs and ther third parties. Systems: Fitch reviews the primary functinalities, cverage and autmatin f the asset manager s key frnt and middle ffice systems, including risk analytics. Fitch s ultimate aim is t determine whether systems match the cmpany s needs, as determined by its current and prjected vlumes as well as the level f cmplexity and diversificatin f prducts and asset types within prtflis. IT Security: Data back-up and disaster recvery prcedures are reviewed t assess the cmpany s vulnerability t technlgical failures. Figure 9 Typical Rating Attributes Technlgy Gd est Surce: Fitch Rating Prcess Systems are n maintained languages and technlgies, cde dcumented and reviewed, gd in-huse r utsurced develpment resurces Central psitin keeping system feeding ther tls and database with hldings, transactins and prices cvering main instruments Daily prtflis' psitin accessible including P&L, breakdwns Available analytical systems (risk, statistical, perfrmance analysis) Systems backup - plicy fr access Mst recent versins f languages and technlgies used, careful selectin f recgnised vendr slutins and/r dedicated develpers fr internal slutins, IT staff specialisatin. Clear systems dcumentatin and flwcharting Well integrated systems with multiple interfaces including with third parties Dedicated rder management system (OMS) Analytical systems interfaced with psitin keeping prviding n demand data and brad reprting functinalities Dedicated middle ffice systems fr rder matching/cnfirmatin, recnciliatin, trade transmissin n mst instruments Disaster recvery prcedures and well equipped Back-up site Regular platfrm upgrades, slid track-recrd in IT changes, state f the art prject management capabilities, highly specialised staffing resurces (including n desk capabilities) Central data warehuse(s), data management plicy, advanced reprting capabilities Integrated FO system suite with real time psitins and P&L, OMS interfaced with electrnic exchanges Risk analytics well integrated in frnt ffice user interface All MO systems are fully interfaced and cver all instruments. Detailed Business Cntinuity Plan, fully and regularly tested. Fitch s AMR prcess is designed t assess relevant infrmatin, cnsistently apply criteria and unifrmly disclse the agency s ratinale. The prcess includes a pre-assessment, a dcumentatin review and an nsite visit. Fitch s analysis and rating decisins are based n relevant public and nn-public infrmatin available t its analysts. The surces f this infrmatin are the manager and the public dmain. The rating prcess als can incrprate infrmatin prvided by ther third-party surces. If this infrmatin is material t the rating, the specific rating actin will disclse the relevant surce. 8

9 Prerequisites Fitch uses pre-assessment measures t determine whether it believes the asset manager has the necessary attributes and can prvide sufficient infrmatin t undertake a full ratings analysis and prvide n-ging surveillance. In general, Fitch lks fr mst r all f the fllwing, in rder, t cnduct AMR: a well-defined regulatry framewrk; a minimum perating histry; reputable custdians, administratrs and auditrs; third-party audits; vehicles with segregatin f assets, trustee duties and legal dcumentatin; clear separatin f functins; clear crprate substance (premises, wners, executives, emplyees, incrpratin, legal dcumentatin); and clear prtfli management respnsibilities (eg the cmpany des nt utsurce prtfli management t a pint where it becmes simply an intermediary). Dcumentatin Review Requested dcumentatin t be received tw weeks befre the nsite visit includes: standard RFP dcuments (see belw fr expected cverage); last audited financial statement; sample f peratinal prcedures; summary f material peratinal lsses and errrs fr the last three years; sample f minutes f risk management/cmpliance/audit cmmittees; sample f relevant external reprts (audit, SAS 70, ISAE3402, supervisry bdy); list f brkers/cunterparties with typical recent vlumes; transactin and trading vlumes ver the last three years; representative set f internal investment risk reprt; sample f investr reprting, including perfrmance analysis reprt. Onsite Visit The nsite review serves t assist Fitch in understanding the rganisatin s prcesses and cntrls. Fitch meets with the fllwing staff: senir management; risk management, including chief risk fficer (if applicable); senir internal cntrl and audit staff; senir cmpliance staff, including chief cmpliance fficer (if applicable); senir middle and back ffice management; head f technlgy/chief technlgy fficer; chief investment fficer and/r lead prtfli managers; and head f trading desk (if any). Interviews als include reviews f prcedures and system demnstratin n desks. Fllwing the nsite review, Fitch may selectively request additinal dcumentatin. Mnitring All AMR are updated at least annually with nging mnitring and surveillance. Tpics cvered thrugh this nging mnitring primarily include: crprate activity; 9

10 staff evlutin; assets under management; and majr prjects underway. Limitatins Specific limitatins relevant t the rating scales applied t asset managers include the fllwing: The AMR relate t specific peratinal units and specific gegraphies within an asset manager they d nt necessarily relate slely t legal entities. The ratings d nt predict a specific likelihd f asset manager failure ver any given perid. The ratings d nt prvide an pinin n the market value f any asset manager s investments, r that asset manager s wn securities, r the likelihd that these values may change. The ratings d nt prvide an pinin n the liquidity f the asset manager s investments, r that asset manager s wn securities. The ratings d nt prvide an pinin n the suitability r therwise f an asset manager fr investment r any ther purpses. The ratings d nt prvide an pinin n the investment strategies implemented by the asset manager r frward-lking return expectatins. 10

11 Appendix A: Asset Manager Rating Scale Asset Manager Ratings are assigned t entire asset management rganizatins r, within larger asset managers, t specific peratinal units r gegraphies. The ratings are assigned n a descriptive scale based n Fitch s assessment f the manager s investment and peratinal platfrm. The assessment fcuses n five main pillars -- cmpany, cntrls, investments, peratins, and technlgy which are derived frm the analysis and aggregatin f 30 rating sub-factrs. The tp three ratings are expected t apply t thse asset managers that meet r exceed the typically applied by institutinal investrs. Figure 10 Asset Manager Rating Scale (Internatinal) AMR scale Abve institutinal Belw institutinal Surce: Fitch AMR definitins est Standards Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsiders t be superir relative t the applied by institutinal investrs in internatinal markets. Standards Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsiders strng relative t the applied by institutinal investrs in internatinal markets. Gd Standards Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsiders gd relative t the applied by institutinal investrs in internatinal markets. Belw Standards Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsiders t cntain sme weaknesses that prevent it frm meeting the applied by institutinal investrs in internatinal markets Inadequate Standards Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsiders t cntain material deficiencies r suggests weak prspects fr cmmercial viability. The agency assigns Natinal Scale AMRs t asset managers perating in cuntries where, fr sme rating factrs, a cmparisn with internatinal may nt applicable. In such instances, thse factrs are evaluated relative t lcal market f institutinal investrs. Natinal Asset Manager Ratings, which display a special identifier fr the cuntry cncerned, eg Standards (mr) fr Mrcc, are cmparable nly t Natinal AMRs assigned in the same cuntry. Figure 11 Asset Manager Rating Scale (Natinal) AMR scale Abve institutinal Belw institutinal Surce: Fitch est Standards (xxx) Standards (xxx) AMR definitins Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsiders superir relative t the applied by dmestic institutinal investrs. Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsiders strng relative t the applied by dmestic institutinal investrs. Gd Standards (xxx) Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsiders gd relative t the applied by dmestic institutinal investrs. Belw Standards (xxx) Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsiders t cntain sme weaknesses that prevent it frm meeting the applied by dmestic institutinal investrs. Inadequate Standards (xxx) Asset manager has an investment platfrm and peratinal framewrk that Fitch cnsider t cntain material deficiencies r suggests weak prspects fr cmmercial viability. 11

12 In sme cases, there may be adjustments t the rating scale described abve t meet the requirements f lcal cnventin r regulatin in sme cuntries. This may invlve variants n the letter prefixes r additinal categries beynd the standard ne-t-five scale. Where applicable, the revised rating scale will be published in the cuntry-specific and/r asset class criteria reprt/addendum. Rating Watches and Outlks Rating Watches and Outlks will be assigned t AMRs, when applicable. A Rating Watch is typically event-driven and, as such, it is generally reslved generally reslved ver a relatively shrt perid. Rating Outlks indicate the directin a rating is likely t mve ver a ne- t twyear perid. They reflect trends in the rating factrs that have nt yet reached the level that wuld trigger a rating actin, but which may d s if such trends cntinue. 12

13 Appendix B: Expected Cverage f Standard RFP Dcuments The standard RFP dcument that the asset manager prepares fr third parties and prvides t Fitch nrmally cvers the areas listed belw. Fitch will expect additinal dcuments t be prvided, shuld certain areas be absent frm the standard RFP dcument. Sharehlders and crprate rganizatin chart Prfitability and financial strength Gverning bdies with members Assets under management by asset class, client type, gegraphy and evlutin ver the past five years Tp 10 accunts List f prtfli managers/flagship funds by prcess Histry, milestnes Third party and Internal audits (main cnclusins) Investment vehicle regulatin and set up (incl. bard) Custdians, administratrs, auditrs with date f inceptin f relatinship Oversight f custdians, administratrs (selectin prcedure, mnitring, key risk indicatrs, service level agreements) Departmental/divisinal rganizatin charts Headcunts and staff turnver by department Key persnnel résumés Cmpensatin plicy Main risk, cntrl and versight cmmittees/meetings Risk Mapping (where applicable) Cntrl rganisatinal structure (teams, cmmittees, systems, reprting, escalatin) Prcedures t address peratinal risk (errr tracking, risk mapping, self assessment) fair allcatin f rders persnal trading insider trading / management f private / public infrmatin trading mistakes (shrt selling, fat fingers) cnflict with affiliated activities misselling and misrepresentatin anti-mney laundering brker selectin and best executin pre-trade and pst-trade cmpliance with investment limits and guidelines pricing (pricing surces, cntrls, plicies) cunterparty risk (selectin, mnitring, standard agreements, cllateral) Client take-n / New prduct apprval Data Management System develpment Risk management reprts and cmmittee minutes cvering market, liquidity and credit risks Operatinal Risk reprting / Management Infrmatin Statistics n frequency and financial impact f errrs / near misses Descriptin f investment prcesses and rganizatin f frnt-ffice 13

14 Client reprting Overall IT architecture (including year f system rll-ut) Transactin flw chart (including cntrl pints) frm frnt ffice t back ffice (if available) Level f STP r electrnic treatment (trading, matching, trade transmissin) by type f instruments Disaster Recvery and Business Cntinuity Plan. 14

15 Appendix C: Criteria Applicatin in real estate investment The five pillars underpinning the manager assessment cmpany, cntrls, investments, peratins, and technlgy will be als applied fr the assessment f real estate asset management cmpanies (REM). The table belw specifies a different fcus and/r additinal cnsideratins f underlying rating cnsideratins that reflect the activity and mdus perandi f REMs. These refer t Cntrls, Investments and Operatins. Figure 12 Criteria Applicatin in Real Estate Investment Categry Tpic Specific fcus and/r additinal cnsideratin Cntrls Third party versight The factr emphasises the brader range f third parties invlved and their versight which include amng thers prperty- and facility manager, legal and technical due diligence specialists, advisrs etc. Fitch als cnsiders the cntrls n and integratin f data between the REM and its agents. Cntrls Cmpliance Given a typically lw level f persnal and securities trading at REMs a strng fcus is put n the management f cnflict f interests particularly n all parties invlved in the prperty prcess, including selectin f cntractrs, architects, real estate agents etc. Cntrls Transactins Referring t selectin f brkers/banks fr related cash management, securities and leverage activities, but als prcess flws f parties invlved in prperty management Cntrls Cnstraints Less trade riented but fcussed n the cntext f acquisitin by type, risk and strategy and their cmpliance with given investment cnstraints. Fitch als cnsiders the fund business planning prcess and cntrl effected thrugh such plans. Cntrls Market Risk Particular emphasis is paid t analysis f risks at the macr (glbal/cuntry/type f prperty) and micr (individual prperty) level that impact real estate investments and reflect n the funds business plans. A strng fcus is put n interest rate risks specifically fr leveraged funds. Like fr ther investment managers the quality f stress testing and scenari analysis play a key rle in the assessment f the factr. Cntrls Cunterparty Credit Risk Beynd financial intermediaries a fcus is kept n the credit quality f parties invlved in prject management. A key cnsideratin is als tenant credit risk and mnitring f related cash flws. Investments Market infrmatin The scpe f the factr emphasises the REM s market access and capacity t enter ff-market transactins. Operatins Surce: Fitch Prcedures and wrkflws Less security trading riented, it analyses the brader range f cash relevant activities and recnciliatins in the perating wrkflw like prcessing rental incme r service csts. 15

16 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. Cpyright 2013 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY Telephne: , (212) Fax: (212) Reprductin r retransmissin in whle r in part is prhibited except by permissin. All rights reserved. In issuing and maintaining its ratings, Fitch relies n factual infrmatin it receives frm issuers and underwriters and frm ther surces Fitch believes t be credible. Fitch cnducts a reasnable investigatin f the factual infrmatin relied upn by it in accrdance with its ratings methdlgy, and btains reasnable verificatin f that infrmatin frm independent surces, t the extent such surces are available fr a given security r in a given jurisdictin. The manner f Fitch s factual investigatin and the scpe f the third-party verificatin it btains will vary depending n the nature f the rated security and its issuer, the requirements and practices in the jurisdictin in which the rated security is ffered and sld and/r the issuer is lcated, the availability and nature f relevant public infrmatin, access t the management f the issuer and its advisers, the availability f pre-existing third-party verificatins such as audit reprts, agreed-upn prcedures letters, appraisals, actuarial reprts, engineering reprts, legal pinins and ther reprts prvided by third parties, the availability f independent and cmpetent third-party verificatin surces with respect t the particular security r in the particular jurisdictin f the issuer, and a variety f ther factrs. Users f Fitch s ratings shuld understand that neither an enhanced factual investigatin nr any third-party verificatin can ensure that all f the infrmatin Fitch relies n in cnnectin with a rating will be accurate and cmplete. Ultimately, the issuer and its advisers are respnsible fr the accuracy f the infrmatin they prvide t Fitch and t the market in ffering dcuments and ther reprts. In issuing its ratings Fitch must rely n the wrk f experts, including independent auditrs with respect t financial statements and attrneys with respect t legal and tax matters. Further, ratings are inherently frward-lking and embdy assumptins and predictins abut future events that by their nature cannt be verified as facts. As a result, despite any verificatin f current facts, ratings can be affected by future events r cnditins that were nt anticipated at the time a rating was issued r affirmed. The infrmatin in this reprt is prvided as is withut any representatin r warranty f any kind. A Fitch rating is an pinin as t the creditwrthiness f a security. This pinin is based n established criteria and methdlgies that Fitch is cntinuusly evaluating and updating. Therefre, ratings are the cllective wrk prduct f Fitch and n individual, r grup f individuals, is slely respnsible fr a rating. The rating des nt address the risk f lss due t risks ther than credit risk, unless such risk is specifically mentined. Fitch is nt engaged in the ffer r sale f any security. All Fitch reprts have shared authrship. Individuals identified in a Fitch reprt were invlved in, but are nt slely respnsible fr, the pinins stated therein. The individuals are named fr cntact purpses nly. A reprt prviding a Fitch rating is neither a prspectus nr a substitute fr the infrmatin assembled, verified and presented t investrs by the issuer and its agents in cnnectin with the sale f the securities. Ratings may be changed r withdrawn at anytime fr any reasn in the sle discretin f Fitch. Fitch des nt prvide investment advice f any srt. Ratings are nt a recmmendatin t buy, sell, r hld any security. Ratings d nt cmment n the adequacy f market price, the suitability f any security fr a particular investr, r the tax-exempt nature r taxability f payments made in respect t any security. Fitch receives fees frm issuers, insurers, guarantrs, ther bligrs, and underwriters fr rating securities. Such fees generally vary frm US$1,000 t US$750,000 (r the applicable currency equivalent) per issue. In certain cases, Fitch will rate all r a number f issues issued by a particular issuer, r insured r guaranteed by a particular insurer r guarantr, fr a single annual fee. Such fees are expected t vary frm US$10,000 t US$1,500,000 (r the applicable currency equivalent). The assignment, publicatin, r disseminatin f a rating by Fitch shall nt cnstitute a cnsent by Fitch t use its name as an expert in cnnectin with any registratin statement filed under the United States securities laws, the Financial Services and Markets Act 2000 f the United Kingdm, r the securities laws f any particular jurisdictin. Due t the relative efficiency f electrnic publishing and distributin, Fitch research may be available t electrnic subscribers up t three days earlier than t print subscribers. 16