Bangkok--21 Jul--Fitch Ratings
Fitch Ratings (Thailand) has affirmed SCB Asset Management Co., Ltd's (SCBAM) National Investment Management Quality Rating (IMQR) at 'Excellent(tha)'. The Outlook is Stable.
KEY RATING DRIVERS
SCBAM's rating is based on the following category scores:
Investment process: Strong
Investment resources: Excellent
Risk management: Excellent
Investment performance: Consistent
Company and client servicing: Excellent
National IMQRs are assigned on a descriptive scale based on Fitch's assessment of the asset manager's investment capabilities and the strength of its operational platform. Asset managers are rated 'Excellent', 'Strong', 'Proficient', 'Adequate' and 'Weak', relative to the standards applied by institutional investors in the relevant national market. Asset managers in the 'Excellent' national scale category demonstrate an operational framework that Fitch assesses as superior relative to domestic institutional standards.
Investment Process
Fitch believes SCBAM has a sound investment process for its broad range of funds. The investment team conducts in-depth fundamental research and executes investment decisions through a formal process. The asset manager also has a well-documented process for reviewing its portfolio performance. Quantitative tools, overlaid with qualitative factors, support SCBAM's investment objectives and decision-making. Its portfolio managers continue to apply machine-learning technology and have extended its use to foreign equity funds, in addition to domestic funds.
The fund's investment process remains consistent, even during the volatile market conditions caused by the coronavirus pandemic in 1H20. We believe a consistent investment process and the use of machine-learning that improve performance over the next few years could raise the investment process score.
Investment Resources
SCBAM's investment teams possess breadth and depth of industry experience. The portfolio managers have diverse and relevant profiles that align with their responsibilities in each asset class. Ongoing development and increased use of machine learning and other technology have enhanced performance over the long term. Most key senior-level investment professionals have a long record with the firm. Key person risk appears limited, with a relatively stable senior management team. The firm functionally segregates responsibilities and roles by organising teams according to asset class.
Front-office systems are automated and integrated, showing evidence of regular maintenance and flexibility of functionality and scalability. The investment division has access to multiple data sources. Fitch considers SCBAM's technological and human resources to be a good fit for its investment processes.
Risk Management
SCBAM's parent, The Siam Commercial Bank Public Company Limited (SCB; AA+(tha)/Stable), sets the group's risk policy, but has decentralised risk functions for its non-bank subsidiaries. The transition has been seamless, as the team continues to perform similar functions. However, the compliance function remains centralised at SCB to increase independence as a third party. SCBAM's risk-management department is functionally independent from its investment staff, but the two teams work closely to ensure an integrated approach to risk controls. The risk team uses internationally recognised systems for risk monitoring and stress testing.
Investment Performance
The firm maintained steady performance on a risk-adjusted basis relative to peers. SCBAM's debt funds - the largest portion of its assets under management (AUM) - have performed satisfactorily relative to similar peers. SCBAM's performance in equity and asset-allocation funds has also been broadly in line with that of peers.
Company and Client Servicing
SCBAM has a long record in Thailand, with operations starting in 1992. It has an established domestic franchise, with significant footprints across a range of fund types. Its combined AUM for mutual, private and provident funds totalled THB1.7 trillion at end-2019. The firm has increasingly offered asset-allocation funds to strengthen its mutual-fund franchise, although fixed-income funds continue to represent over 70% of total AUM.
SCB gained some market share in 1H20, despite industry-wide disruption caused by the coronavirus pandemic, demonstrating a strong domestic franchise. SCBAM is still a leading player in private funds, commanding well over 40% of the total industry's AUM. This reflects its strong franchise among institutional and high-net-worth clients. SCBAM's detailed reports to unitholders for mutual, private and provident funds meet regulatory and industry reporting standards.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The rating is already at the highest level, hence, an upgrade is not possible.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The rating is sensitive to adverse changes to any of the following five key pillars: investment process; investment resources; risk management; investment performance; and the company's performance, including client servicing. Any negative change in the score assigned to one or more pillars could lower the rating.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579]
SOURCES OF INFORMATION
The sources of information used to assess this rating were SCBAM and information in the public domain.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Additional information is available on www.fitchratings.com