Bangkok--20 May--Fitch Ratings
Fitch Ratings (Thailand) has converted Thailand-based SCB Asset Management Co., Ltd.’s (SCBAM) National Asset Manager Rating (AMR) to ‘Highest Standards (tha)’ under its new rating scale from ‘M2+(tha)’, following an update of its criteria for Asset Manager ratings. The Outlook is Stable.
Fitch has updated its rating criteria, rating scale and definitions for Asset Manager ratings. Asset Manager ratings are now assigned on a descriptive scale based on Fitch’s assessment of the manager’s investment and operational platform. Asset Managers are rated ‘Good Standards’, ‘High Standards’ and ‘Highest Standards’, relative to the standards applied by institutional investors in international markets (or domestic market standards for National Scale ratings).
Key Rating Drivers
SCBAM’s rating recognises the company’s established history of fund management, its strong domestic market position and support from its single shareholder - Siam Commercial Bank Public Company Limited (SCB, AA(tha)/Stable/F1+(tha)). SCBAM also benefits from its parent’s distribution capacity and extensive resources in risk management, compliance and IT.
The rating also takes into account SCBAM’s experienced senior management and investment staff, although their tenure with the company has been brief and staff turnover in equity investment management has been high. The rating is further supported by a solid control framework, formalised investment process, and increased automation in middle and back office functions after IT upgrades.
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 and improving the performance of its equity funds. Other challenges include continued upgrade of the IT platform without delay or operational disruption.
SCBAM’s ‘Highest Standards (tha)’ rating is based on the following category scores:
Company: High
Controls: Highest
Investments: High
Operations: Highest
Technology: Highest
Asset manager operations in the 'Highest Standards' National Scale category demonstrate an operational framework that Fitch considers superior relative to domestic institutional standards.
Company: SCBAM benefits from stable ownership by its single shareholder, SCB, which has expressed full commitment to the asset management business and demonstrated operational and financial support for SCBAM. Despite the majority of its products being fixed income and equity funds, SCBAM 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. Staff turnover in the company’s equity investment management and fund operation divisions has been high over the past three years.
Controls: SCBAM’s risk management and control framework is strong and governed by SCB, using the latter’s extensive staff, tools and expertise. Operational and investment risks are managed through close coordination between SCBAM’s risk management committee and SCB’s risk management division. Risk monitoring is further bolstered by SCBAM’s pre- and post-trade compliance although its pre-trade checks are not yet fully automated.
Investments: SCBAM’s investment process is formalised and documented. The company uses the top-down inputs of proprietary investment strategy with the bottom-up fundamental research provided by a research team of nine analysts to formulate investment decisions. Its fixed-income investment approach has been stable with satisfactory fund performance in 2012. Its asset allocation department has established a track record of strong performance since 2011. However, high staff turnover results in a lack of continuity in its equity investment approach and, consequently, in underperformance in its equity funds over the past three years, barring an improvement in 2012 to Q113.
Operations and Technology: SCBAM's reporting services to investors are in compliance with regulation and in line with local practice. It has improved communication with provident fund clients, including on-line accessibility. By end-Q114, SCBAM will be a registrar for provident funds under its management, whereby information on subscription and redemption will automatically be reflected in the company’s portfolios, helping to reduce the scope for input error. SCBAM has conducted detailed fund analysis (performance attribution, key risk indicators), but, to date, it has been 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 2013 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 THB666bn at end-2012, 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 70% of AuM in fixed income and money market products.
Rating Sensitivities
The rating may be sensitive to material adverse changes to any of the aforementioned rating drivers, notably through weakened financial conditions, heightened staff turnover or deterioration of processes and policies. A material deviation from Fitch guidelines for any key rating driver could cause the rating to be downgraded by Fitch