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TEXT-Fitch affirms HFT Investment Management Co. Ltd at 'M2 +(chn)'
August 21, 2012 / 10:08 AM / 5 years ago

TEXT-Fitch affirms HFT Investment Management Co. Ltd at 'M2 +(chn)'

(The following statement was released by the rating agency)

Aug 21 - Fitch Ratings has affirmed HFT Investment Management Co. Ltd.’s (HFTIM) National Scale Asset Manager Rating at ‘M2 +(chn)'. The affirmation includes HFTIM’s Hong Kong-based 100 % subsidiary and the firm’s international management arm, HFT Investment Management (Hong Kong) Company Limited (HFTHK).

KEY RATING DRIVERS

The main driver of the affirmation is Fitch’s expectation that HFTIM will continue to demonstrate a resilient business performance. The fund industry environment over the past 12 months to H112 has proved difficult but, despite a decline in its retail business reflected by lower equity markets and redemptions, HFTIM’s efforts to diversify its book of business paid off. The institutional business, primarily pension funds, on the contrary continued to grow. The affirmation also reflects the full integration of the Hong Kong based subsidiary, including risk management and control framework as well as portfolio management. In September 2011 HFTIM transferred its international QFII (Qualified Foreign Institutional Investor) advisory assets for delegated management to HFTHK which was granted a RQFII (RMB Qualified Foreign Institutional Investor) license and assigned CNY1.1bn of investment quota end-2011. Fitch expects further growth from the authorities’ recent measures to add to the number of QFII/RQFII licenses and extended investment quotas.

Like its peers, HFTIM’s challenges are to achieve sizeable and sustainable fund raising results in the current market environment to maintain its mutual fund market share. HFTIM also needs to increase the size of its existing fixed income mutual funds and to strengthen distribution. Fitch believes that further IT initiatives will also support the company’s efficiency objectives, primarily in distribution.

HFTIM’s ‘M2+(chn)’ 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: 2.00 (from 2.25)

Portfolio Management: 2.25

Investment Administration: 2.25

Technology: 2.25 (from 2.00)

COMPANY AND STAFFING

HFTIM is a fully licensed company and operates with a diversity of businesses. It has over years built a sustainable record in its institutional and international business. Fitch recognises the long-term strategy and breadth of the company despite a moderate decline in profitability in 2011. The agency also notes a higher staff turnover in its investment teams compared to the extremely low levels of previous years. However, Fitch views it as still moderate versus the industry and does not believe it has a material impact on decision making.

RISK MANAGEMENT AND CONTROL

HFTIM has fully integrated HFTHK into its risk monitoring and controls. Fitch notes the progressive enhancement in risk reporting standards and the firm’s lead among peers in operational risk management. Tight trade surveillance has remained both entities’ key focus.

PORTFOLIO MANAGEMENT

HFTIM’s portfolio management processes have remained solid and stable despite the staff changes, some of which were internal. A new head was appointed to the research department and staff numbers increased to underpin investment decision making and HFTIM’s aspiration as a leading Greater China investment manager. HFTHK has established a small integrated team which is well connected through the use of the firm’s common web-based research platform for the group.

INVESTMENT ADMINISTRATION AND TECHNOLOGY

Both entities run an efficient, largely automated trade life cycle management. Fitch notes that in 2011 HFTIM started to trade index future contracts, which are conservatively used and securely processed. Fitch views the HFTIM’s client reporting as transparent and well adapted to local standards. HFTIM is supported by has a robust technological platform which covers well its business requirements. Fitch also notes that HFTHK is fully connected to the IT framework.

COMPANY PROFILE

Incorporated in April 2003, HFTIM is a Sino-foreign joint venture asset management company. Haitong Securities Co. Ltd., one of China’s top-tier securities firms, owns 51% and BNP Paribas Investment Partners BE Holding, a fully-owned subsidiary of BNP Paribas Investment Partners (BNPP IP), owns 49%. HFTIM offers 19 mutual funds and two funds under the QDII scheme, and has CNY56.3bn assets under management (AuM) end-June 2012. HFTHK was established in November 2010. It has about CNY22.0bn AuM, consisting of a private and public fund but primarily delegated investment management. The group employs 212 staff, of which 15 are based in Hong Kong.

RATING SENSITIVITY

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. More specifically, continued and consistent outperformance in terms of market growth and versus peers while maintaining stability and operational strength could lead to an upgrade to ‘M1(chn)'; on the contrary senior management or key portfolio manager staff turnover may cause the rating to be downgraded. For additional information about Fitch’s asset manager ratings guidelines, please review the criteria referenced below, which can be found on Fitch’s website at www.fitchratings.com.

HFTIM’s rating report will shortly be available at www.fitchratings.com.

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