The chief executive of van Eyk Research, Mark Thomas, has fired a broadside at the Australian investment research industry, criticising his peers for failing to apply high levels of scrutiny to fund managers that pay for ratings.
In a statement to the media, Thomas said research houses that are paid by fund managers to rate products do not apply as critical an assessment of those managers compared to those with a subscriber-pays model. Thomas asserted that research houses that do not derive their income directly from fees for investment ratings are almost two and half times more likely to critically assess the performance of fund managers.
Specifically, Thomas compared the performance of his research house with that of four of other research companies: Lonsec, Morningstar, Standard & Poor’s (S&P) and Zenith Investment Research.
Thomas based his assertion on an assessment of the number of endorsements issued by the five ratings houses.
The figures were based on 386 fund strategies rated by van Eyk Research, 410 by Lonsec, 554 by S&P and 303 by Morningstar (the statement did not include the number of funds rated by Zenith).
Of those funds, Thomas said van Eyk Research rated 52 per cent as 'investment grade', compared to 87 per cent for S&P, 89 per cent for Lonsec, 93 per cent for Morningstar and 95 per cent for Zenith.
Thomas said the figures proved his group offered research “free from any commercial considerations”. His statement follows similar analysis undertaken by the Australian Financial Review last Thursday, the same day Thomas delivered a speech on the topic. Thomas is working hard to define the value added by his company in an environment where many of its key contracts are under review, but the topic remains one of critical importance to the financial planning industry generally.
Zenith’s John Nichol rebutted the findings, saying Zenith’s process included a detailed screening process that saw only the top 25 per cent of fund managers qualify for ratings — and as such its ratings would be skewed more heavily towards positive endorsements.