Having set up the model in Germany and Austria, RCP & Partners are now bringing their manager fiduciary rating system to the French and UK markets. A joint venture has been established in Wiesbaden with one of the leading German pension consultants, Dr Heissmann, associated with Buck Consultants internationally, which has a 49% stake in the new operation.
“Our approach is a new one for the German and Austrian markets,” says Uwe Kern with RCP in Wiesbaden. “We think our rating concept comes at a good time when the market is changing. A higher degree of professionalism is being demanded by institutional investors generally, but particularly as to how they select external managers.” Contact has been made with over 60 managers operating in the market.
It is a more qualitative than quantitative method of assessment, he explains, whereby the investment and the business side of a manager’s operations are scrutinised. “We have 44 criteria we detail to the client in our rating report, 24 on the business side and 20 on the other.” Two questionnaires are issued to managers, followed by interviews with all the decision makers. “In the case of a large group this could be up to 30 interviews,” says Kern.
“We do not do unsolicited ratings, since we need the close contact with the manager to get the information,” he says. If a manager does not want a rating to be published, they can have it withheld, though once it goes public it cannot revert to privacy on the rating in the future. A rating usually just relates to a particular investment universe such as Europe and is not transferable to another.
So far, a number of investment managers in Germany and Austria have expressed interest and four have agreed to be rated.
Shane Norman, who is head of research for RCP and is setting up the London-based office to cover the UK and France, describes the 44 rating criteria as “setting benchmarks to best practice. This is not a pass-fail test. Our rating is an evaluation against best practice.” He adds: “We set a level below which a firm is not suitable to handle institutional money.” He believes that it is something that managers will find worthwhile doing from both marketing and internal management viewpoints.
Norman contrasts this with fund rating, where he says: “You put the cart before the horse, as most of the risk with the manager. Once you rate the manager, most of the fund rating falls out of the bottom from this.”
He sees consultants, and it need not necessarily be just one group, as the natural fit as a partner for a joint operation, similar to that in Germany for the French and UK markets. “We are not in competition with consultants and do not recommend or select managers, but simply provide tools for their better selection.”
The firm started its European ratings in Switzerland, where it has rated seven or so managers and also about six in France, with some more contracts in the pipeline.
“We have had contact and discussions with established rating agencies such as Moody’s and Standard & Poor’s over the years, and there has been a level of interest,” says Norman, but refuses to comment further.
At Standard & Poor’s in London, Shiv Tanegi confirms that fund manager rating is an area that the rating group has had under consideration as a logical step in the US and elsewhere, but says that no decision has been taken.
When French rating group AMR was merged into international rating firm Fitch IBCA earlier this year and recently renamed Fitch-AMR, following the Duff and Phelps purchase, the signals being emitted were that the European market was ripe for such initiatives.
Antoine Briant, the former institutional investment consultant who launched AMR, says the group currently has 23 signed contracts on the books – these include five in the UK, one in Germany, one in Switzerland, Robeco in the Netherlands and 15 in France – including Indocam, CCR Capital Management, CPR Gestion and CCF Capital Management.
The group also published its fifth public rating at the end of June – an (a+) note for France’s CCR Gestion.
Managers are rated on a sliding scale of b- to aaa, according to five main criteria – structure, independence, communication, investment and risk management. Commentary is provided on all aspects of the rating.
However, publication of the rating is at the manager’s discretion and Briant flags up the potential problem: “Sometimes, houses which perceive that they have been given bad ratings don’t always want to publish.
“There is also the issue that a manager never wants to be the lowest grade in any list.”
Nevertheless, Briant believes the investment community will drive forward the requirement for money managers to be measured in this way.
“In Paris we have seen four RFPs and two in Switzerland where one of the questions has been whether a manager is rated by us. One large Benelux manager came and asked us to rate them after receiving such a request.”
Under the Fitch-AMR system, any manager rated above (bbb) is considered institutional grade in quality.
Briant says the firm is seeking to be a ‘pre-consultant’ checklist. “We believe the pension fund will use the ratings before they see the consultant and then they will work on the RFP together. “In a few years time we hope that all managers will be measured in as transparent a way as possible using the same criteria.”