Moody's upgrading method for rating asset managers

Moody's Investors Service is upgrading its methodology for rating asset managers, and part of the process involves soliciting feedback from global market participants. On Tuesday, Moody's published a draft form of a credit-rating methodology and score card that is designed to assess more systematically the risk factors for alternatives asset managers and the increasing balance sheet risk for traditional asset managers. Key elements of the proposed changes include greater weight assigned to financial as opposed to business profile, adjustment to financial and profitability metrics to better account for performance fees, adjustments to assessments of financial flexibility to account for increased use of balance sheets, and enhancements to certain rating factor metrics to better capture market position and business diversification. Moody's is inviting public comment on the proposed changes until Nov. 15. Depending on the comments, the new methodology will be adopted, replacing the October 2007 global rating methodology for asset managers. As part of the announcement, Moody's justified the proposed changes by pointing out that “while the assets under management in the asset management industry have returned to pre-crisis levels, volatile markets, growth in regulation and heightened competition have had a major impact on the shape and composition of the industry in the wake of the financial crisis.”