Fitch Affirms Sciens' Asset Manager Rating at 'High Standards', Revises Outlook to Positive

Fri Jun 27, 2014 12:20pm EDT

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(The following statement was released by the rating agency) LONDON, June 27 (Fitch) Fitch Ratings has affirmed Sciens Fund of Funds Management Holdings Ltd.' (Sciens) at 'High Standards' and revised the Outlook to Positive from Stable. The rating covers Sciens's Fund of Hedge fund (FoHF) and Managed Account Platform (MAP). KEY RATING DRIVERS The affirmation is driven by the overall stability of Sciens's business in 2013 and 2014 to date. Notably, Sciens has maintained a stable level of staff relative to the turnover in prior years. Sciens' managed account platform (MAP) has been a key driver of the overall increase in fund of fund assets under management (AUM) in 2013 and is a strategic priority, as AUM have fallen in its fund of hedge fund business. The rating also reflects Sciens' robust and scalable investment, operational and technological platform. A key strength of the organisation is its proprietary integrated technological platform, which enables a high level of automation of workflows and supports discipline in investment and risk management processes. The Positive Outlook is driven by the improving quality of Sciens's AUM mix and improving profitability. Fitch expects the combination of an improved AUM mix, potential growth in AUM and performance fees (if realised) to contribute to an improved financial position over time. The Positive Outlook also factors in Fitch's improved view of Sciens' operational capabilities, largely driven by the successful replacement of its main MAP custodian. Sciens's 'High Standards' rating is based on the following category scores: Company: Good Controls: High Investments: High Operations: Highest (improved from High) Technology: Highest Asset manager operations in the 'High Standards' category have an investment platform and operational framework that Fitch considers strong relative to the standards applied by institutional investors in international markets. Company Sciens' assets under management (AUM) have demonstrated an improved mix in 2013 and 2014 to date. It has successfully shifted AUM from low margin legacy products to higher margin new business. However, AUM remained flat overall in 2013 and there is significant investor concentration in its FoHF management business. The investment team and overall staffing levels have been broadly stable in 2013 and 2014 to date, following turnover in prior years. Sciens has added and continues to add sales staff. Fitch considers the level of staff in the investment team adequate in light of Sciens' technology, although it also sees some key-person dependency. Sciens demonstrates an overall solid organisational structure and governance mechanisms, with adequate separation of businesses and functions. Controls The overall control environment of Sciens is sound. Control functions consist of a dedicated risk team within a separate affiliate and compliance officers. Solid investment risk management and compliance monitoring are supported by sophisticated data management, risk analytics and reporting capabilities. Operational risk management is well embedded throughout the organisation and benefits from automated workflows, documented procedures and system-based controls. Investments The investment process is disciplined and well documented, based on a robust blend of fundamental and quantitative analysis. The competitive advantage of the fund's research and portfolio construction stems from deep access to underlying hedge fund data and risk analysis capabilities. Operations Sciens' operations platform is robust, enabling a controlled, fully automated implementation of workflows with a variety of service providers. FoHF investment administration is handled by Sigma Asset Management (Guernsey) Limited, the manager of the funds. The successful move to ABN Amro as custodian, completed in 2013 combined with enhancements to certain operational processes has led to an improvement in the Operations score. Technology Fitch considers Sciens' technology its key strength. It maintains a proprietary integrated technological platform with risk analytics and centralised in-house data management capabilities. Sciens also provides investors with an interactive, customisable look-through application that allows them to perform in-depth analysis of managed accounts. Company Profile Sciens Capital Management LLC (SCM) and its predecessor firms were founded in 1988 and began alternative asset management activities in 1994. Sciens is privately held. As of 31 March 2014, the group managed and advised on about USD5.3bn of assets. FoHF and managed account AUM were USD3.2bn (both in direct investments and advisory). Around 40 of SCM's 100-plus employees are dedicated to the FoHF and MAP. RATING SENSITIVITIES The Positive Outlook indicates that Fitch expects the rating to be upgraded over the next one- to two-years. An upgrade could be triggered if Fitch improves one or more category scores, notably the Company category score. Specifically, Fitch would expect to improve the Company category score if Sciens continues to improve the quality of its asset mix, resulting in an improved financial position, effectively diversifies its investor base and maintains or improves its staffing adequacy. The rating may be sensitive to material adverse changes to any of the aforementioned rating drivers, notably through weakened financial conditions, staff turnover or deterioration of processes and policies. A material deviation from Fitch guidelines for any key rating driver could cause Fitch to downgrade the rating. Contact: Primary Analyst Alastair Sewell Senior Director Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Manuel Arrive, CFA Senior Director +33 1 44 29 91 77 Committee Chairperson Davie Rodriguez, CFA Senior Director +1 212 908 0386 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: Elaine.Bailey@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria, 'Asset Manager Rating Criteria, dated 6 May 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Asset Manager Rating Criteria here Additional Disclosure Solicitation Status 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 WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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