S&P's Australian withdrawal questions ratings' future

BT funds management van eyk research westpac morningstar chief executive

23 February 2012
| By Chris Kennedy |
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A scaling back of the services offered in Australia by S&P Capital IQ (S&P) could be a symptom of an overcrowded market undergoing a rationalisation - but more consolidation could be on the cards, according to several industry experts.

S&P last week announced it would be withdrawing its local funds research and local wealth management services from 1 October 2012.

It said other services, such as those offered by S&P Indices and S&P Ratings Services, as well as other offerings from S&P Capital IQ, would be unaffected.

Chief executive of van Eyk Research Mark Thomas said the fact that the market had started to rationalise was positive.

He said that globally there were only three credit ratings agencies - Fitch, Moody's and S&P - but in Australia there were six agencies just rating funds. "Three is enough," Thomas added.

He said that if the client base of a ratings house disappeared, that was a comment about its quality. If no-one was using a service, then fund managers would not pay for it.

Morningstar co-head of funds research Tim Murphy said that while he did not wish to comment on S&P, the Australian funds management market was the most over-researched market in the world, even ahead of larger markets such as the US.

Several funds managers have said the reduced competition may not be a positive for the industry.

One prominent funds management identity, who did not wish to be named, raised concern that there would be less diversity of opinion in the research market. Less research talent would lead to more limited access to research, and potentially longer timeframes for rating outcomes.

It would also be a negative for managers who had a favourable rating from S&P and less favourable ratings elsewhere.

He also raised the question of whether managers who are currently paying for ratings provided by S&P would be entitled to any kind of refund.

Although S&P has said it will continue to offer local funds research and local wealth management services up until the withdrawal date of 1 October 2012, the source said those ratings were now essentially worthless and questioned whether managers who had paid for ratings services would be offered a partial or total refund for the remainder of the period.

Money Management understands that one of S&P Capital IQ's last remaining major subscription clients is Westpac, which includes BT dealer groups Securitor and Magnitude.

BT provided a statement saying it used S&P's managed fund profile fact sheets throughout their advice business, but was now in the market for a new provider for this service.

BT added it also has a large in-house research team that provides wealth research, including equities and structured products.

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