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Fitch Affirms Schroders' IMQR at 'Excellent'
July 10, 2017 / 4:23 PM / 4 months ago

Fitch Affirms Schroders' IMQR at 'Excellent'

(The following statement was released by the rating agency) PARIS, July 10 (Fitch) Fitch Ratings has affirmed Schroder Investment Management's (Schroders) Investment Management Quality Rating (IMQR) at 'Excellent'. The Outlook is Stable. KEY RATING DRIVERS The rating primarily reflects Schroders research-led investment processes, implemented in a disciplined manner across a diversified book of businesses and within a solid risk management framework. Fitch views positively the actions taken by Schroders to address industry challenges, re-investing in future, higher-margin business growth while implementing a more cost-efficient operating model. The rating factors in the execution risk inherent in the roll-out of the enterprise-wide Aladdin operational system. It also factors in the business and investment risks arising from both capabilities expansion (such as private assets and alternatives, innovative solutions) and client base development (notably in North America and Asia Pacific). Schroder's 'Excellent' rating is based on the following category scores: Investment Process: Excellent Investment Resources: Excellent Risk Management: Excellent Investment Performance: Consistent Company and Client Servicing: Excellent The above category scores result from an asset weighting average of the scores obtained in each of the main business units / strategies of Schroders, namely equities, multi-assets and fixed income. Schroders' IMQ Rating references the investment activities based in the global investment hub, London (excluding the alternatives and real estate business). Investment Process Schroders' active, mainly research-driven investment process is implemented across a broad range of strategies by accountable, focused staff in a risk-controlled manner. Overall, portfolio construction follows a disciplined risk-budgeting approach, supported by proprietary risk analytics. The investment process has proven stable, with notable enhancements as markets, client needs and financial engineering evolve. Accordingly, Schroders is enhancing its capabilities in private assets, alternatives and multi-asset solutions. Investment Resources Schroders has managed to keep its organisation of investment teams and processes simple and efficient, despite its business growing in size and complexity over the past five years. Notably, a new product division was recently created to enhance strategic innovation and product development and to consolidate the solutions business. Schroders' board and senior management changes in 2015-2016 have now settled down and are well-integrated, demonstrating the organisation's ability to renew leadership and manage successions. Schroders is in the process of rolling out the Aladdin system and upgrading its data architecture globally. The implementation of a single, enterprise-wide system aims to simplify the existing IT platform, streamline related operational processes, and enhance global integration, ultimately reducing infrastructure costs. Risk Management Schroders has an effective, highly structured, risk and governance framework that is deeply embedded in the business and which also benefits from the independent oversight by influential risk functions and committees. Mechanisms to address risk challenges and risk escalation are formalised and operate effectively, in Fitch's view. Investment risk management is embedded in the investment process via detailed risk budgeting and investment guidelines. Risk management procedures have evolved to adapt to the increasing sophistication of Schroders' strategies and instruments. Investment Performance Overall, Schroders' risk-adjusted performance has been consistent, relative to peers and benchmarks, with an overall improvement observed over the past 12 months. Seventy-four per cent and 85% of Schroder's assets under management (AUM) have outperformed benchmarks over three and five years gross of fees, respectively, as at end-December 2016 - an improvement on the previous year. Also, Fitch estimates that 50% to 60% of AUM (funds excluding mandates) have a Sharpe ratio (a risk-adjusted measure of performance) above that of the Lipper category average over three and five years, based on Lipper data. A majority of AUM (excluding mandates) also show better drawdown statistics than the fund's Lipper category average over three and five years. Company and Client Servicing The company has a global, diversified, long-established and expanding franchise. The business evolved mainly through organic growth but more recently, through targeted acquisitions in key regions (eg the US) and asset classes (eg securitised credit, private assets). Schroders is a global asset management company and the core subsidiary of Schroders Plc (A+/Stable/F1). At end-March 2017, Schroders managed GBP361.9 billion (GBP405.1 billion, including wealth management), of which 64% was for institutional clients, 35% for intermediaries. 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's guidelines for any key rating drivers could cause the rating to be downgraded. Specifically, should Fitch determine that the rollout of Aladdin results in process disruption, operational losses or staff turnover, the agency may place the rating on Negative Watch while it evaluates the extent to which investment and operational capabilities are undermined. Fitch will closely monitor implementation risks during the 18-24 month system migration period. Contact: Manuel Arrive, CFA Senior Director +33 1 44 29 91 77 Fitch France S.A.S. 60 rue de Monceau Paris 75008 Secondary Analyst Abis Soetan Director +44 20 3530 1311 Committee Chairperson Ralph Aurora Senior Director +1 212 908 0528 Media Relations: Rose Connolly, London, Tel: +44 203 530 1741, Email: rose.connolly@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Investment Management Quality Ratings (Assessing Active, Passive & Alternative Investment Managers, Strategies & Funds) (pub. 06 Mar 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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