Ratings house sentiment shifts on agribusiness MISs

If ratings house activity and dealer group caution is any guide, the Australian agribusiness managed investment scheme (MIS) sector has reached a watershed.

With two of the better regarded agribusiness schemes — Rewards Group and FEA — having hit trouble in the past month, key ratings houses Lonsec, Zenith and van Eyk Research have narrowed the focus of their radars. Lonsec is currently rating just one scheme, while Zenith and van Eyk are rating just two. At the same time, dealer group investment committees are viewing the sector with extreme caution.

The degree to which dealer group and ratings house attitudes to agribusiness MIS investments had been affected by recent events were reflected in comments by Standard & Poor’s wealth management services group director Paul O’Connor, who said discussions with dealer group investment committees had revealed a lot of concern and a lot of caution with respect to agribusiness schemes.

He said that caution was borne of concerns about the longevity of scheme promoters and what happens to the assets when promoters hit trouble.

“Unlike the funds management arena, there is a big question mark around the assets being on-sold,” he said.

The negativity around the sector has, unsurprisingly, seen a significant decline in the number of schemes seeking to be rated.

Zenith analyst Dugald Higgins said the number of products being rated was a direct reflection of the gloom and low levels of capital being sought.

“The level of capital raisings with respect to MISs will be lucky to pass through $100 million this year,” he said.

Higgins said that while some investors and MIS promoters had sought to direct an element of blame towards ratings houses, responsibility needed to be shared with promoters and advisers.

“People try to use research houses as a proxy for decision-making and it is the poor old investor who wears the losses,” he said. “They need to remember that a ratings house assessment of an agricultural MIS is a point in time snapshot of an illiquid product. Something that rates four stars in 2005 will not necessarily warrant four stars in 2010.”

Van Eyk chief executive Mark Thomas said his company’s specialist agribusiness alliance partner, Adviser Edge, had not altered its methodology nor approach in the face of the turmoil in the sector, sticking to a formula based on products being well-priced and governed with a value for money overlay.

Like Zenith’s Higgins, he said that while some might point their finger at ratings houses, the blame needed to be shared, with some advisers being guided more by incredible up-front commissions than research.

As well, he said clients themselves needed to accept their share of responsibility in circumstances where they had invested on the basis of tax efficiency rather than profitability, and the Government needed to accept responsibility for creating the tax-preferred environment.