TEXT-Fitch affirms investment manager ratings after industry peer review

Mon Jul 2, 2012 12:56pm EDT

July 2 - Fitch Ratings has completed a peer review of four rated Investment
Managers (IMs), resulting in the affirmation of the long-term Issuer Default
Ratings (IDRs) of Affiliated Managers Group Inc. (AMG),
AllianceBernstein L.P. (AB), Invesco Ltd. (IVZ), and
Schroders Plc (Schroders).

Affirmed ratings are centered in the 'A' rating category, with the exception of
AMG, which is rated 'BBB-'. Company-specific rating rationales are described
below, and a full list of rating actions is provided at the end of this release.
The Rating Outlook for all investment managers has been maintained at Stable.

Many IMs have used have used the past two years to increase assets under
management, improve relative investment performance, streamline expense base,
reduce leverage, and fix any operational problems. Recent headwinds, including
unsettled equity markets, near-zero interest rates, risks of renewed global
recession, and ongoing turmoil in the Eurozone sector, could pose challenges for
IMs. However, Fitch believes that improved or at least stable financial and
operational flexibility should help most IMs maintain rating stability over the
next year despite these headwinds.

Affiliated Managers Group
AMG's affirmation reflects its growing scale in the asset management space,
solid investment performance by its affiliates, strong cash flow generation, and
improving leverage and coverage ratios. Ratings also factor in the company's
inherent exposure to volatility in broader financial markets.

AMG's affiliates' assets under management (AUM) have more than doubled
post-crisis, and measured $364 billion at the end of the first quarter (1Q'12),
compared to $170 billion at year-end 2008. The increase has mainly come from
strong organic growth ($120 billion) and partly from the six acquisitions made
during the downturn ($70 billion). AMG has now generated positive flows for
eight consecutive quarters, with approximately $40 billion in total net inflows
in the past two years.

Revenues and earnings have been solid as a result of higher average AUM and fee
generation. Increased cash flows have led to consistent deleveraging. Leverage,
measured as gross debt to trailing twelve months (TTM) adjusted EBITDA, was 2.1x
at 1Q'12, down from 3.2x at year-end 2010. Interest coverage, measured as TTM
adjusted EBITDA to interest expense, strengthened to 6.6x in 1Q'12, from 6.1x at
year-end 2010. Fitch notes that leverage ratios are susceptible to temporary
increases following large acquisitions.

Demonstrated access to public debt markets, maintenance of current leverage,
improvement in interest coverage, and consistent operating and investment
performance could lead to positive rating action. Conversely, aggressive
acquisitions funded by increased debt levels, material deterioration in leverage
or interest coverage ratios, sustained investment underperformance at major
affiliates, significant increase in equity puts by affiliates leading to
liquidity issues, and/or unexpected operational losses or significant net
outflows, could lead to negative rating action.

AllianceBernstein:
AB's ratings affirmations reflect its established position in the investment
management space, strong debt and interest coverage metrics due to a modest use
of leverage, and a balanced AUM mix by product, channel and geography. Rating
constraints include sensitivity of AUM to global financial markets, subpar
investment performance in its core equity strategies, and lagging operating
margins.

Revenues have declined due to lower average AUM and the shift in asset mix from
equities to fixed income. EBITDA, adjusted for non-cash charges and one-time
non-recurring expenses, measured $555.8 million in 2011, down 30% from $797.3
million in 2010. Expense reduction efforts have trailed revenue declines,
pressuring operating margins. Fitch believes that significant top-line revenue
growth is needed to push margins back to pre-crisis 25%-30% levels.

Fitch believes that AB's minimal use of balance sheet leverage provides the
company significant financial flexibility and offers good protection to its
creditors.

AB's solid capital base offers a comfortable cushion to support organic growth
of the business. Although, Fitch notes that AB has increased its use of seed
capital investments to support new product development, which if not properly
managed could impact capital levels. Fitch expects tight controls over
management of these investments, and any further increase in the seed
investments would be viewed negatively.

The Stable Outlook reflects Fitch's expectation that the company will be able to
maintain - if not improve - current AUM levels, generate consistent investment
performance, and strengthen operating margins without materially increasing
investment or balance sheet risk.

Fitch will revise the Outlook or its ratings if:
--AUM levels drop below $375 billion, due to client outflows or negative
investment performance;
--EBITDA, as calculated by Fitch and adjusted for non-cash and one-time charges,
falls below $450 million.

Additionally, material increase in seed capital balance or losses, and/or an
increase in leverage could result in negative rating action. Upward ratings
potential is limited due to AB's AUM, earnings, and cash flow sensitivity to
financial market trends.

Invesco Ltd.:
IVZ's affirmation reflects robust operating performance, continued AUM growth,
improved debt service coverage and leverage metrics and its low-risk balance
sheet. Fitch believes IVZ will maintain reduced financial leverage as it focuses
on organic growth and builds its available cash balance.

The benefits of the Morgan Stanley/Van Kampen acquisition became apparent in
2011. IVZ improved its operating metrics as it benefitted from greater scale and
diversity of AUM. Furthermore, IVZ's positive long-term fund flows have been
supported by respectable investment performance. Adjusted operating margin was
36.9% in FY2011, up from 35.6% in FY2010. AUM was up 7.6% during 1Q'12, but has
experienced declines in April and May due to risk aversion in global equity
markets.

IVZ has reduced leverage, and debt-to-adjusted TTM EBITDA stood at 1.0x at
1Q'12, down from 1.3x at YE2010. Interest coverage has also improved to 22.1x in
1Q'12, compared to 17.3x in YE2010. Both measures provide ample room under the
company's covenants and compare favorably to peers.

Fitch expects IVZ to be able to maintain performance appropriate to the current
rating level, even under a moderate period of equity market stress. While
positive rating momentum is not likely in the near term, continued progress in
expanding the franchise as well as a further reduction in leverage and
improvement in debt service coverage could benefit the ratings and/or Outlook. A
severe and prolonged decline in equity markets could pressure the rating and/or
Outlook, as well as unexpected operational losses or significant net
redemptions.

Schroders Plc:
Schroders' IDRs reflect its well-diversified and strong franchise and sound, if
volatile, profitability and cash generation in the context of its low overall
leverage. Schroders itself has a liquid balance sheet and substantial capital
resources (consolidated tangible equity/assets excluding insurance of around
34%) and no debt. Its private banking subsidiaries are strongly capitalized and
have low overall credit and liquidity risk profiles.

Like all IMs, Schroders' AUM and ultimately earnings and cash flow are
inherently linked to financial markets, the group's investment performance
relative to peers, and overall investor sentiment. The company is also exposed
to operational and reputational risks. Despite this, in Fitch's opinion,
Schroders' low overall leverage and its low risk appetite and conservative risk
culture (Schroder Investment Management has an 'M1' Asset Manager Rating from
Fitch) provide a significant cushion for creditors of the company.

There is limited upside to Schroders' ratings, given their high level and the
sensitivity of IM industry participants' AUM, earnings and cashflow to financial
market trends and to firm-specific investment performance, which Fitch believes
will inevitably oscillate over time. Schroders' ratings could be sensitive to a
significant reduction in capitalization or material increase in leverage, for
example as a consequence of a major acquisition or from material reputational
damage or sustained weakening of performance or notable AUM net outflows.

Fitch has affirmed the following:

Affiliated Managers Group, Inc.
--Long-term IDR at 'BBB-';
--Senior bank credit facility at 'BBB-';
--Senior convertible notes at 'BBB-'.

AMG Capital Trust I
AMG Capital Trust II
--Trust preferred securities at 'BB-'.

AllianceBernstein L.P.
--Long-term IDR at 'A+';
--Short-term IDR at 'F1';
--Short-term debt at 'F1'.

Invesco Ltd.
--Long-term IDR at `A-';
--Senior unsecured debt at `A-'.

Invesco Holding Company Ltd.
--Long-term IDR at `A-';
--Senior unsecured debt at `A-';

IVZ, Inc.
--Long-term IDR at `A-';
--Senior unsecured debt at `A-';

Schroders Plc
--Long-Term IDR at 'A+';
--Short-Term IDR at 'F1'

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com.' Ratings above for
AllianceBernstein L.P. and Invesco Holding Company Ltd. were unsolicited and
have been provided by Fitch as a service to investors. All the other ratings
cited above were solicited by, or on behalf of, the issuer, and therefore, Fitch
has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:
-- 'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);
-- 'Investment Manager and Alternative Funds Criteria' (Dec. 23, 2011);
-- 'Treatment and Notching of Hybrids in Nonfinancial Corporates' (Dec. 11,
2011).

Applicable Criteria and Related Research:
Investment Manager and Alternative Funds Criteria
Global Financial Institutions Rating Criteria
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.