Rothschild loses a star but hopes to gain an alliance

MorningstarResearch has downgraded Rothschild Australia Asset Management (RAAM) from a four to a three-star rating amid intense industry expectation of an announcement by RAAM on its progress in establishing a new alliance and equity partner.

RAAM announced mid-December that it was undertaking discussions with potential equity partners for its funds management business in Australia.

Despite this, Morningstar initially retained its four-star rating of RAAM, announcing that it preferred to base its rating decision on the findings of its own full qualitative reassessment of the fund manager.

With the reassessment now complete, Morningstar denies there is any link between the announcement by RAAM and its downgrade of the manager.

“The downgrade was not affected by RAAM’s announcement on alliances and equity participations. Morningstar was not at all surprised by the announcement,” Morningstar Australia’s head of research Daisy Chee says.

In a statement by Morningstar, the research house describes RAAM as having “ambitious growth plans, using a virtual global strategy to compete against larger investment houses, forming innovative alliances where it does not add value”.

RAAM outsourced its international equities business to Putnam in April 2000.

Chee says the future status of RAAM’s ratings will depend on who the alliance partner is and the terms of the alliance.

“Any material event affecting any fund management company will be reviewed by Morningstar immediately. The rating would then be finalised after that,” she says.

Rothschild is expected to make an announcement on the status of its alliance proposal by the end of the month.

Meanwhile, Chee expects the RAAM downgrade will have a direct impact on the net asset flow to the fund manager.

She says in a report recently released by the Federal Reserve Bank of Atlanta, it was revealed that abnormally negative flows generally followed ratings downgrades.