(The following statement was released by the rating agency)
Dec 5 - Fitch Ratings has affirmed Schroder Investment Management's
(Schroders) 'M1' Asset Manager rating. The rating covers the company's
London-based investment activities with the exception of the alternative asset
management business. Asset manager operations in the 'M1' category demonstrate
the lowest vulnerability to operational and investment management failure.
KEY RATING DRIVERS
The rating affirmation reflects Schroders' strength and overall stability during
2012. It takes into account the firm's ability to invest in people to expand
into key areas of growth. Specifically, hiring of high profile investment
professionals enhanced capabilities in global credit, emerging market debt, high
yield, multi-asset investments and solutions, as well as total return
Schroders' key strengths reside in its global, diversified, long established
franchise and a solid risk management framework. Disciplined, research driven
investment processes across asset classes and a robust operational
infrastructure also differentiate Schroders from peers.
The main challenges facing Schroders are to accelerate growth in certain regions
(Asia and US) and client segments (Sovereign Wealth Funds and private saving
pools), expand its absolute return and income-oriented investment capabilities
and adapt to regulatory changes. The forthcoming overhaul of the Front Office
technological platform is a major project to support the longer term evolution
of the business, including the increased use of derivatives. Fitch also
recognises that Schroders, whose success is largely driven by investment
performance, will continuously be challenged to retain talented investment
Schroders 'M1' rating is based on the following category scores, which
represents a scale from 1 to 5, with 1 as the highest possible score:
Company & Staffing: 1.75
Risk Management & Controls: 1.75
Portfolio Management: 2.00
Investment Administration: 2.25
COMPANY AND STAFFING
Schroders' well diversified business, client and geographic mix support the
resilience of the company in unstable markets. Net inflows of GBP5.3bn were
experienced in the year to September 2012, with over 70% coming from
institutional clients. The company's stable profitability and liquidity ensures
the solid funding of investments, staff, IT and regulatory needs. During 2012,
Schroders' CIO stood down from the Board and it was announced that the CFO will
step down in 2013. Fitch takes comfort from the asset-class heads in place and
the announcement of a suitably qualified replacement CFO.
RISK MANAGEMENT AND CONTROLS
Schroders has an effective risk and governance framework that is well embedded
in the business but also benefits from the independent oversight from risk
functions and committees, whose influence was further reinforced in 2012.
Schroders' ability to design contingency plans for the materialisation of key
emerging risks (such as euro break up) is a differentiator relative to peers.
The active, mainly fundamental research-driven investment processes remained
stable in 2012. The processes are supported by accountable, focused staff and
asset class-specific analytics. In Fitch's view, an increased focus on macro-top
down allocations has enhanced fixed income portfolio constructions. Global as
well as total return and income-oriented strategies continue to be expanded and
refined along core processes both in the fixed income and equity space.
Investment operations remain scalable and robust, as demonstrated by an ability
to manage increased volumes, particularly in derivatives, product complexity and
customisation. The reliance on some third-party service providers is a well
managed area of risk, according to Fitch.
Schroders benefits from a scalable, efficient technological platform largely
built around global third-party vendors whom provide support to strong Middle
Office processes. Schroders has initiated a project aiming at upgrading its
Front Office systems. In Fitch's view, system migration tends to increase
temporary operational risk, but Schroders has proven in the past its ability to
successfully manage projects of this scale.
Schroders, which is the core subsidiary of Schroders plc ('A+'/Stable/'F1'), is
a global asset management company with GBP202.8bn under management as at
end-September 2012 (63% institutional, 37% retail, excluding private banking),
44% of which is invested in equities. The company employed 2,998 staff globally
as of 30 September 2012.
The rating may be sensitive to material adverse changes to a combination of the
aforementioned rating drivers. A material deviation from Fitch's guidelines for
any key rating driver could cause the rating to be downgraded by Fitch. For
additional information about Fitch's asset manager ratings guidelines, please
review the criteria referenced below, which can be found at
Additional information is available at www.fitchratings.com.
The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.
Applicable criteria, 'Reviewing and Rating Asset Managers', dated 13 August 2010
are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Reviewing and Rating Asset Managers
(New York Ratings Team)
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