Bangkok--25 May--Fitch Ratings
Fitch Ratings (Thailand) has affirmed Thailand-based SCB Asset Management Co., Ltd.'s (SCBAM) National Asset Manager Rating at 'M2+(tha)'.
The affirmation recognises the company's established history of fund management, its strong domestic market position and the strength of support from its single shareholder - Siam Commercial Bank Plc (SCB, 'AA(tha)'/Stable/'F1+(tha)'). SCBAM benefits from its parent's distribution capacity, and extensive resources in risk management, compliance and IT.
The rating also reflects SCBAM's experienced senior management and investment staff despite the departure of co-Chief Investment Officer (co-CIO) for equity investment management. The rating is further supported by the stability of its fixed income investment process and by the fact that its asset allocation department is establishing a track record of positive performance. Despite a delay, its IT upgrade project of middle-to-back office functions is now mostly completed and has resulted in a higher level of automation in updating portfolio holdings and calculation of net asset value.
The main challenges facing SCBAM are growing its market share and assets under management (AuM) amid intensifying competition. There is also scope for stabilising staff turnover in equity investment management and improving the performance of equity funds. Other challenges include continued upgrade of the IT platform without delay or operational disruption.
SCBAM benefits from its stable ownership by SCB, which fully commits to the asset management business and provides related operational and financial support. Despite the majority of its products being fixed income and equity funds, the company is diversifying to multi-asset class investment including global funds, mixed funds investing domestically and globally, as well as risk target funds. SCBAM has also become more customer-centric in its product offering to institutional provident and private fund clients. Overall staff is experienced notwithstanding a short tenure at SCBAM. Fitch notes high staff turnover in the company's equity investment management division over the past two years.
The company's risk management and control framework governed by SCB meets fiduciary obligations. Operational and investment risks are managed through close coordination between SCBAM's risk management committee and SCB's risk management division. Fitch notes the presence of SCBAM's pre- and post-trade compliance checks although its pre-trade checks are not yet fully automated.
The former co-CIO for equity investment management and a dealer are reportedly being investigated by the Securities Exchange Commission's (SEC) for inappropriate trading. SCBAM said it has found no irregularities in these two former employees' activities, both of whom had been with the company for only about six months. The company has implemented more stringent rules for the investment management division, partly in line with measures to be enforced by the SEC on all asset management companies in mid-2012.
The implementation of SCBAM's top-down/bottom-up investment approach benefits from the supervision of co-CIOs and an investment committee. Fitch notes the company's strong internal credit research, despite a high workload per analyst, and its emphasis on portfolio performance review involving senior management and fund managers. In the agency's view SCBAM is, however, still challenged by a lack of continuity in its equity investment approach due to high turnover and the weak performance of its equity funds (albeit improving in Q112) over the past few years.
Its reporting services to investors are in compliance with the regulation and in line with local practice. SCBAM targets various reporting enhancements for provident fund investors in 2012. Its detailed fund analysis (performance attribution, key risk indicators) is, however, mainly for internal use.
SCBAM benefits from SCB's extensive IT resources and a system upgrade of middle-to-back office operations. It has allowed SCBAM to handle more complex assets. For 2012 further improvements are planned for its front office operation to complete its major platform enhancement.
Incorporated in March 1992, SCBAM is the asset management arm of SCB. With AuM of THB583bn at end-2011, the company is the second-largest asset management company in Thailand. SCBAM invests mainly in the Thai market and covers all asset classes with approximately 67% of AuM concentrating in fixed income and money market products.
SCBAM's 'M2+(tha)' 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: 2.25 (from 2.00)
Risk Management & Controls: 2.00 (unchanged)
Portfolio Management: 2.25 (unchanged)
Investment Administration: 2.00 (unchanged)
Technology: 2.00 (unchanged)
Asset manager operations in the 'M2' National Scale category demonstrate low vulnerability to operational and investment management failure relative to the specific characteristics of the national market in question.
The rating may be sensitive to material adverse changes to any of the aforementioned rating drivers. A material deviation from Fitch guidelines for any key rating driver could cause the rating to be downgraded by Fitch. For additional information about Fitch asset manager ratings guidelines, see the criteria referenced below, which can be found on Fitch's website.
SCBAM's rating report will shortly be available at www.fitchratings.com.