Fitch first to assign CDO asset manager ratings

Fitch will become the first rating agency to assign credit ratings to CDO (collateralised debt obligations) asset managers. The New York-based agency is taking a new, flexible approach to its methodology for its forthcoming rating process, aimed at boosting the ratings' applicability to a diverse universe of CDO investors.

Fitch will rate CDO asset managers on nine different categories, ranging from past financial performance of managed CDOs to technological competence of the firm and staffing expertise. The scores for the nine categories will then be given a weighting and combined for an overall ranking.

But Fitch acknowledged that the weightings allocated to each category is subjective - for example, the company’s management experience is weighted to be worth 10% of the ranking - and will not reflect the different risk:reward ratio of varying investors. So Fitch will publish both the weighting allocations and the scores given to the rated fund for each category, allowing investors to reconfigure the agency’s score to more accurately reflect the importance of each category to its investment decision.

Standard & Poors’ has produced rating reports on a dozen CDO asset managers, but does not assign final rating scores. Moody’s Investor Services has no ratings programme for CDO asset managers as yet.