Moody's Methodology For Asset Management Firms

www.moodys.
com
Moodys Global
Rating
Methodology
Asset Management
October 2007
Table of Contents:
Summary
Moodys Universe of Rated Asset
Management Firms
Framework for Rating Asset
Management Firms
Rating Summary Profile
Key Rating Factors
Other Considerations
Appendix I
Moodys Related Research
1
2
3
4
5
15
18
20
Analyst Contacts:
New York
1.212.553.1653
18 Matthew Noll, CFA
Moodys Global Rating

Methodology for Asset
Management Firms
Summary
Globally, Moodys maintains ratings on 15 asset management firms with
approximately $12 billion of debt and over $6.5 trillion of assets under
management (AUM), as of mid-year 2007. These ratings reflect Moodys opinions
of these institutions creditworthiness, which incorporate both business and
financial fundamentals for each rated entity. The primary purpose of this rating
methodology is to enhance the transparency of Moodys rating process by
identifying and explaining the key factors that tend to drive our evaluation of an
asset managers 1 credit profile.
Vice President - Senior Credit Officer
12 Benjamin Goldberg
Associate Analyst
Joel Levine
Senior Vice President
Robert L Riegel
Team Managing Director
Ted Collins
Because this methodology applies to asset management firms globally, it is

necessarily general in some respects and is not intended to be an exhaustive
discussion of all possible factors considered for the ratings of every asset
management firm. Product and market characteristics, regulatory regime,
accounting standards, as well as ownership and organizational structure, can vary
widely from manager to manager and country to country. As much as possible,
Moodys rating approach reflects such differences, specifying the metrics that
correspond to particular rating categories.
Group Managing Director

Eric Bigelsen
Investor Relations
London
44.20.7772.5454
Timour Boudkeev, CFA

Vice President - Senior Credit Officer
Benjamin Serra
Associate Analyst
Simon Harris
Team Managing Director
This methodology applies to asset management firms that receive management

and/or performance fees for investments that they manage and is best suited for
traditional (non-alternative investment) asset managers. This methodology does
not serve as the basis for evaluating the credit risks at the fund level or of
investment holding companies 2 . When evaluating hedge funds at the manager
level, Moodys expects to draw from its rating methodology for credit ratings at the
fund level (Assigning Unsecured Credit Ratings to Hedge Funds, April 2007) and
when evaluating private equity managers, we will perform case-specific analysis to
supplement the basic framework described here.
Asset management firm and asset manager are used synonymously throughout this methodology.
Rating Methodology
Moodys Global Asset Management
Moodys Global Rating Methodology for Asset Management Firms
In determining the long-term debt ratings of asset management firms on a stand-alone basis, Moodys begins
with an analysis of the following business and financial characteristics shown in Figure 1.
Figure 1: Asset Management Firm Rating Factors

Business Profile
Financial Profile
Factor 1: Market Position
Factor 4: Financial Flexibility
Factor 2: Distribution & Services
Factor 5: Profitability & Stability
Factor 3: AUM Diversification & Retention
Moodys Universe of Rated Asset Management Firms

Globally, Moodys maintains debt or issuer ratings on 11 asset management firms domiciled in the U.S., 3 in
the UK, and 1 in Bermuda. The current rating distribution of companies with public ratings and a list the firms
with their respective ratings are provided in Figures 2 and 3.
Asset Management Firm Rated Universe Distribution of Public

Ratings (as of October 15, 2007)
Figure 2 Moody's Asset Management Firm Rated Universe
Long-term Senior Debt & Issuer Ratings
8
7
Number of Firms
6
5
4
3
2
1
0
Aaa
Aa
Baa
Ba
Caa
For links to Moodys rating methodologies pertaining to fund level ratings (credit ratings and operational quality ratings), please see the Related
Research links on page 17 of this report.
October 2007 Rating Methodology Moodys Asset Management - Moodys Global Rating Methodology for Asset Management Firms
Rating Methodology

Figure 3: Asset Management Firm Rated Universe
List of Firms with Public Ratings
Public Ratings
$ in billions - latest reported at mid-year 2007
FMR Corp. (Fidelity)
BlackRock, Inc.
AUM ($US) Domicile

$1,508 US
1,230 US
Ticker
Senior Debt/
Issuer Rating
Outlook
Aa3
Negative
BLK
A1
Stable
AllianceBernstein L.P.
792 US
AB
A1
Stable
Franklin Resources, Inc.
624 US
BEN
A1
Stable
Fidelity International Ltd.
280 Bermuda
A2
Positive
Legg Mason, Inc.
992 US
LM
A2
Stable
INVESCO PLC
492 UK
IVZ
A3
Stable
Eaton Vance Corp.
154 US
EV
A3
Stable
Nuveen Investments, Inc.
172 US
JNC
Baa1
RUR
EMG.L
Baa1
Stable
Man Group plc
67 UK
Waddell & Reed Financial, Inc.
52 US
WDR
Baa2
Stable
GAMCO Investors, Inc.
30 US
GBL
Baa2
Negative
Janus Capital Group Inc.
188 US
JNS
Baa3
Stable
Gartmore Investment Management plc
48 UK
Ba3
Stable
GSCP (NJ) L.P. (GSC Inc.)
18 US
B1
Stable
Total
$6,646
Framework for Rating Asset Management Firms

Moodys debt ratings for asset management firms reflect our opinion of relative risk related to the payment of
long-term, senior debt obligations. Because our ratings address the ability of the firm to continue as a goingconcern in order to meet its obligations over future horizons, our analysis incorporates prospective views
whenever possible, without ignoring past cycles of performance.
In the following sections, we will: review the five key rating factors underlying an asset management firms
business and financial profile; discuss why each factor is important to our ratings; present the relevant
metrics in analyzing these factors; and demonstrate how we interpret those metrics. Some of those that we
consider important are clearly quantifiable, while others involve a mix of quantitative and qualitative
assessments. For each of these metrics, we will outline Moodys views and expectations about how a
companys profile would typically correspond with a given rating level for its senior debt rating or issuer rating
Aaa through Caa.
In applying this methodology, it is not uncommon for a companys actual final rating to differ from the rating
level guidelines for certain metrics. To the extent that an asset manager is a frequent outlier on the metrics
described in this methodology, then one (or some, or all) of the following conditions can be assumed: a) there
is likely pressure on its rating (up or down); b) some element(s) of its business or financial profile is sufficiently
compelling that it dominates the analysis; or c) the unique characteristics of the asset managers accounting,
regulatory or market environment limit comparability. The interpretation of how well a particular asset manager
fits within its rating category can be found in Moodys published research (e.g. Credit Opinions) about that firm.
As much as possible, we have chosen metrics that utilize publicly available information and are readily
quantifiable. We recognize that some of these are rather simplistic and presume certain underlying qualities
that are related to credit profile but may not fully capture the complete credit story. To a significant degree,
however, these are analytic trade-offs necessary to facilitate compiling and comparing the data uniformly. The
primary benefit of our rating methodology is that it ensures higher levels of consistency and transparency than
would likely be possible without such an approach.
Rating Methodology

The financial metrics here use a consistent basis of accounting, depending upon the region (IFRS, US GAAP,
etc.). We recognize that different accounting conventions do not produce the same financial results, but we
believe that the differences are mostly minimal relative to the rating ranges established. To the extent that
other accounting conventions or non-standardized adjustments are reported by a company, we may also use
such measures with appropriate interpretation of the results.
Rating Summary Profile

Moodys Rating Summary Profile provides a summary outline of the basic analytic framework used in
determining the rating. As part of the rating committee process, analysts complete a Rating Summary Profile
(see Figure 4) that summarizes both the raw metric values that underpin each factor (summarized in the
column labeled Score in Figure 4) as well as the analysts judgment on each of the factors (summarized in
the column labeled Adjusted Score in Figure 4). The adjusted score is very important to the analysis because
it permits analysts to exercise a more prospective view than may be represented using historical data. This
view may also include the use of proprietary, non-public data, such as forecast models.
The Score (i.e. the rating) may be derived from a Rating Predictor Model, which we discuss in Appendix 1.
Broadly, business profile factors represent 60% of the overall rating determination, while financial-profile
factors represent 40%. Other considerations beyond the key rating elements, which include governance,
accounting, regulation, and external support, are also considered and may affect the rating outcome where
relevant.
Figure 4: Rating Summary Profile

Senior Debt Rating Scoreacard (weights)
Aaa
Aa
Baa
Ba
Caa
Score Adj. Score
Business Profile
Market Position (20%)
Market Share of AUM
Market Share of Gross Flows

Distribution and Services (20%)
Distribution Channels
Services Positioning
Diversification & Retention of AUM (20%)
Diversity of Product Classes
Diversity of Customer Type
Retention Rate
Financial Profile
Financial
Flexibility (25%)
Total Debt / EBITDA
EBITDA / Interest
Managed Investments / Equity
Profitability & Volatility (15%)
Net Income Margin
Stability of Revenue Growth (20 qtr, YoY)

Aggregate Profile Rating
Total Scorecard Rating Rating (# Value)
Other Considerations (if appplicalbe, enter the number of notches to be added to the total scorecard rating above) :
Management, Governance, and Risk Management:
Accounting Policy & Disclosure:
Sovereign & Regulatory Environment:
Stand-Alone Rating Recommendation:
Support (if applicable, insert number of notches to be added to the standalone rating above) :
Nature and Terms of Explicit Support:
Nature and Terms of Implicit Support:
Final Rating Recommendation:
Rating Methodology
Key Rating Factors - Business Profile

Factor 1: Market Position
Why It Matters
The market position factor is a comprehensive assessment of a firms core capability as an investment
manager relative to the overall industry, as well as to its direct competitors. The assessment captures
franchise strength, reputation, investment performance, and its track record of developing and sustaining
competitive advantages. A favorable market position with regard to a particular investment style or
management expertise can make a firm a go-to source for additional business and can readily convey a
certain level of trust that is otherwise more challenging as a firm with a less favorable stature in the market.
We measure such qualities predominantly through a subjective estimation of a firms market shares of overall
AUM and annual gross fund flows 3 .
Relevant Metrics
Market Share of AUM:
AUM / Market AUM
Market Share of Gross Flows:
Gross Flows of AUM / Market Gross Flows of AUM
Interpreting the Metrics

Market share within a target market, in terms of AUM and gross flows, are highly indicative of an asset
management firms reputation, its ability to achieve scale, and its sway over third-party advisor platforms and
investment consultants. A high market share is typically a trait of a larger firm, but depending on the addressed
market, a smaller firm may also score well if it is demonstrating leadership within its niche area of expertise.
Market share of AUM and gross flows are complex values to determine because of the challenges of defining
the firms target market. For traditional companies, we will use a firms domestic AUM relative to a large
segment of the total domestic market, where the domestic fund market will be the proxy for the total market.
For alternative managers, the firms share of the global alternative investment market is appropriate.
We distinguish leadership in broad and deep markets as a status that is preferable to leadership in new,
unstable, or narrowly defined markets. Although exceptions exist, on balance, smaller market shares and firms
tend to have characteristics of less institutionalized businesses. An example would be a firm where the
executives who are managing the operation of the company are also making investment decisions at the level
of portfolio managers. As much as possible, market position should be incorporating the likelihood that the
asset manager can improve or defend its position relative to other firms, given either a market wide downturn
or firm specific troubles.
Qualitative considerations also included in our market position assessment are (a) the quality and
sustainability of target investor demand, and (b) the value proposition of the investment product or service. For
example, the rise of Exchange Traded Funds (ETFs) has driven strong flows of business to certain firms
focused on this product. However, market oversaturation or negative publicity (say, about how these funds
may be failing to properly track indices) could materially diminish the staying power for certain funds quickly.
This example is indicative of why a secure market position is only attainable if both the customers and
products together demonstrate quality characteristics. A firms realistic potential for growth, its behavior
through business cycles, and its ability to isolate and contain performance issues (or headline making
problems) are all considered in a market position analysis.
Our assessment also accounts for the direction and strength of market share trends. A large asset manager
may score high in terms of AUM market share; if, however, it has lost market share relative to its primary
competitors over the last several years, our evaluation will account for such a trend. Additionally, overall net
flow performance and flow performance, broken out by product type or customer channel, will substantially
Gross fund flows may also be referred to as gross fund sales.

Rating Methodology

help to round out our evaluation of the market share of gross flows. For example, a leading share in gross
flows, but with net negative flows overall, could seriously undercut the value of the metric.
The role of investment performance in the overall rating evaluation is described in Figure 5.
Figure 5: Investment Performance: Does it affect ratings?

Asset managers universally recognize investment performance as the firms most important deliverable;
however, linkages between investment performance and credit strength are not always direct. The impact of
investment performance on a firms credit profile can be significant, but the challenges of quantifying the
linkage are formidable except for the extreme cases (e.g. post-Internet bubble technology managers or fund
companies concentrated in only one investment style). Given the added challenge of uniformly measuring
investment performance 4 using only publicly available information, investment performance will tend to be
addressed as a qualitative consideration in our ratings of asset managers.
We believe that materially positive or negative investment performance can be well correlated with two metrics
in our methodology: (a) market share of gross flows (part of Factor 1 Market Position); and (b) the asset
retention rate (part of Factor 3 AUM Diversification & Retention). To the extent that the metrics are not
adequately reflecting investment performance considerations, we will include such considerations in the
adjusted scores of these factors.
In terms of what forms of investment performance are evaluated, we use the companys own performance
assessments, third-party assessment services, or most preferably, composites that meet the industrys best
practices (e.g. CFA Institute standards) for performance reporting.
Figure 6: Summary of Relevant Metrics Market Position

Aaa
Aa
Baa
Ba
Caa
Assets Under Management Market Share
> = 16%
16% - 10%
10% - 4%
4% - 1%
1% - 0.5% 0.5% - 0.05% < 0.05%
> = 16%
16% - 10%
10% - 4%
4% - 1%
1% - 0.5% 0.5% - 0.05% < 0.05%
Factor 2: Distribution & Services

Why It Matters
This factor evaluates the means by which the firm sells its funds and investment services, utilizes
complementary services to enhance its sales, diversifies the overall business, and improves customer
retention. A companys control and influence over its distribution can be as important as investment
performance for attracting assets.
Achieving preferred terms with third-party advisor platforms and/or the ability to achieve scale in distribution
are growing in importance as funds become more sophisticated and as investors require more advice.
Distribution control is also important for managing costs, because distribution costs are second only to
compensation as contributors to the overall expense burden of an asset manager.
The services component of the business is an increasingly important part of a comprehensive investment
management package offered to clients. Services refers to fee-based offerings that are typically other than
the firms core function as an investment manager. Service offerings can be a significant diversifier of
revenues and earnings. They can also mitigate the experience of disappointing investment performance (for
Making a corporatewide determination of investment performance is challenging. To create parameters that define it is quite difficult, for many
reasons. For instance, data that meets consistent reporting standards can be the first difficulty. Retail mutual fund performance is readily found, but
standard reporting of institutional composites can be hard to obtain and even harder to publicly evaluate. Even if standard reporting were to be
readily accessible across a full range of a firms AUM, establishing a definition of a good level of performance is complicated by significant
variation in investors objectives.
Rating Methodology

investors and the asset manager), thereby lessening the firms dependence on the core investment
management function.
Relevant Metrics
Distribution Channels:
Number of Broad, Moodys-defined Distribution Channels
Score range: 7 best, 1 worst

As a guide to determining this metrics score, only channels that generate at least 10% of the companys fund
sales (in assets) during the most recent full fiscal year are considered as significant. The discrete channels
evaluated are shown in Figure 7.
Figure 7: Distribution Channels

Distribution Channel
Example of Sale
1. Retail Direct
Purchase fund product on a firms internet site or through its call center
2. Retail Supermarket
Purchase fund product through a third party internet site or call center
3. Retail Financial Advisor Major brokerage Financial advisor of global wirehouse facilitates the sale
4. Retail Financial Advisor non-Major
brokerage
Same as above, but the advisor is not affiliated with a major, nationally
recognized brokerage house (e.g. buy a fund through a life insurance agent)
5. Retail Financial Advisor In house
The companys own financial advisors make the sale
6. Institutional Direct
Purchase service directly through firms internal channels, without any third
party consultant support or referral
7. Institutional Consultant
Purchase service with assistance from third party consultant support or

referral
Services Positioning:
Number of Services Offered to Clients
Score range: 10 best, 0 worst

A detailed, but not all inclusive list of examples of services that can be considered in computing this metric are
listed in Figure 8.
Figure 8: Examples of non-core products or services offered to

clients that can count toward the Services Positioning metric
Retail Service
Institutional Service
1. Insurance
1. Research
2. Brokerage
2. Securities Clearance
3. Advisory
3. Retirement Planning Services
4. Private Wealth Advisory
4. Benefits Administration
5. Trust/Custody
5. Commercial Lending
6. Research
6. Insurance Trusts
7. Banking
7. Government Sponsored Tuition Assistance Plans
8. Private Banking
8. Advisory/Portfolio Strategy
9. Securities Execution
10. Brokerage
11. Securities Lending
12. Risk Analytics
Rating Methodology

The distribution channel metric measures the number of channels that a firm is pursuing to gain access to
clients. Broadly, these sales channels are either accessed through financial intermediaries or flow straight to
retail or institutional customers. By identifying five retail channels and two institutional channels, it is likely that
retail-focused asset managers will be better positioned than institutional managers on this metric.
We will not bias our rating judgments toward retail managers, but we do believe that multiple distribution
channels and the granularity of a retail client base are attractive credit attributes. The larger the number of
distribution channels (up to seven, with qualitative overlays for the quality of each distribution channel
counted), the stronger our metric score becomes.
The qualitative considerations in evaluating distribution may include an assessment of the firms reliance on
certain broker/dealers or other third-party distribution platforms. For example, does the company sell a
significant portion of its funds through one or several wirehouse financial advisor networks; or, where do the
companys funds rank within this wirehouses top-selling products? The exclusive or nonexclusive nature of
various distribution relationships may pose specific opportunities or challenges for an individual firm. The size
and anticipated growth of the wholesaling staff are other examples that could help refine our opinion of
distribution strength.
This factor also assesses the depth and breadth of services that the asset management firm actively markets
to its customers. Most companies will not be able to differentiate themselves on service efforts alone because
investment performance is so critical to the overall value proposition; but, those firms with very limited services
will likely not have as strong asset-gathering capabilities or client persistency as those with such services. In
evaluating service strengths, we will consider whether the services offered are major revenue generators with
market-leading positions or simply minor incremental revenue builders. Figure 9 provides guidelines for how
these metrics conform to expectations for particular rating levels.
Figure 9: Summary of Relevant Metrics Distribution & Services

Aaa
Aa
Baa
>=7
Firm offers
limited (12) services.
No clear
leadership
or
competitive
differentiati
on for any
services.
Firm offers
very limited
to no
services but
can claim
niche
leadership
in its
respective
specialty.
Firm offers
very limited
to no
services and
is not
viewed as a
niche
leader.
Firm offers a
Firm offers a
Firm offers
spectrum (>10) of broad array (6- several (3-6)
services to retail
10) of services
services to
and institutional
to retail and
retail or
customers.
institutional
institutional
Commanding
customers.
customers.
leadership and
Leadership and
Limited
meaningful
meaningful
leadership or
competitive
competitive
competitive
differentiation can differentiation differentiation
be cited for more can be cited for in services
than one service.
offered.
at least one
service.
Ba
Caa
1
Factor 3: Diversification & Retention of AUM

Why It Matters
This factor measures two ways in which an asset management firm diversifies its revenue mix: product type
and customer type. Additionally, this factor assesses how well a firm retains assets (a stickiness measure).
Strong AUM mix by product and customer types can significantly mitigate the risk of having any single
segment of the business fail to perform as expected. Greater diversification by product and customer type is
typically a characteristic of higher-rated asset management firms, as they have a broader and more stable
base of assets and clients to earn fees from during periods of vulnerability or unexpected behavior.
Rating Methodology
The retention rate of AUM is important because a high base of AUM is only meaningful if it will be in place for
an extended period. The asset retention metric is actually driven by AUM redemptions occurring over the past
year, which can be an important determinant of impending credit deterioration. Asset redemptions are related
to considerations such as the contractual nature of the invested assets, product characteristics (e.g. closed
end funds vs. open end funds), investment performance, industry competition, and or broad market shifts in
investors preferences. In conjunction with our gross flows evaluation incorporated in Factor 1 Market
Position, the retention rate metric rounds out our evaluation of asset flows.
Relevant Metrics
Diversity of Product Classes:
Relative measure of firms diversification in the following four product

classes:
Asset Product Classes 5 :

(1) Domestic equity funds
(2) International equity funds
(3) Fixed income
(4) Other products not fitting in classes 1-3: (e.g. money market funds, alternative investments)
Score range: 0%-100%; higher score represents better diversification.
See Figure 10 for an explanation of how the diversification metric is calculated.
Diversity of Customer Types:
Relative measure of firms diversification in the following customer types:
Customer Type Classes:

(1) Retail
(2) Institutional
(3) Private wealth 6
Score range: 0%-100%; higher score represents better diversification. This diversification metric is calculated
using the same approach as for Asset Product Class, above, with the more limited range reflecting fewer
potential types.
See Figure 10 for an explanation of how the diversification metric is calculated.
AUM Retention Rate:
(Beginning of year AUM redemptions during year) / Beginning of year

AUM
Score range: 0%-100%; higher score represents better retention.

For companies with large money market balances, only long-term assets and long-term flows are used for this
calculation.
Analyst judgment may be used to alter the categories such that they fairly measure the companys diversification.
For firms with private wealth customers, there should be evidence that the firm itself is providing an elevated level of advisor attention that is somehow differentiated from the
service level offered to either retail or institutional clients.
6
Rating Methodology

F
a
c Figure 10: Scoring Diversification
t
o Diversification scoring explanation
r
If there are 4 categories, then to be perfectly diversified, each category would be 25% of the total
3 ("perfect diversification").
:
If there are 3 categories, then to be perfectly diversified, each category would be 33.3% of the total
("perfect diversification").
A
U Each sub-category contributes to a final diversity score in the following manner:
M
Step 1: Take the sum of the absolute value of the "perfect diversification" score (in %) - the actual
percentage
in each category.
D
i
Step 2: Convert the sum of the category scores to a single percentage by taking 1 - (sum of category
v
scores / max possible sum of category score)
e
r This process is best understood with an example.
s
i
Step 1:
f
i
"Perfect"
Category
Scores
c % in Category Diversity 1 Calculation
25% Category 1 : (60% of total) Absolute value of (25 - 60) = 35
35
a 60%
t 3%
25% Category 2 : (3% of total) Absolute value of (25 - 3) = 22
22
i 17%
25% Category 3: (17% of total) Absolute value of (25 - 17) = 8
8
o
20%
25% Category 4: (20% of total) Absolute value of (25 - 20) = 5
5
n
Sum of Category
Scores
70 => (on scale of 0-150;

0=best, 150=worst)
&
Step 2:
RDiversification
' => (1 - 70/150) = .53
53% => (on scale of 0-100;
100%=best, 0%=worst)
e Metric Score in %
t1 "Perfect diversity" will typcially be defined as equal slices of an AUM pie chart, but can be defined otherwise in rare or
e special cases.
n
t
Sample Diversity Pie Chart
i
o
Category D
20%
n
W
h
y
I
t
Category C
17%
Category A
60%
Category B
3%
M
a
10
Rating Methodology

Good product diversification is essential for a strong sales mix and stable revenue generation, which are
expected attributes of more highly rated firms. Strength in product diversification implies that the firm has
multiple centers of investment expertise that can manage funds across a spectrum of asset classes. Firms
with strong product diversification provide investors an ability to diversify their assets through a single firm
relationship and the flexibility to switch products without having to change firms. To the extent that there is
poor diversification by product type, a firm may be able to mitigate such a condition with risk management
functions.
The customer-diversification metric measures diversity across the industrys most commonly identified
customer groups. Each of the three customer types (retail, institutional, private client/high net worth) will
typically be marketed/sold to differently, and platforms that can address all three customer types tend to be
more institutionalized. To a limited degree, each customer type will be attracted to products and services in
various ways and react differently to strong or weak fund performance.
Retaining assets through market cycles and periods of poor manager performance is a measure of the
resilience of the manager as well as of the firms brand and reputation. The retention rate metric looks at AUM
leakage without the added noise of offsetting sales efforts, hot products, and market appreciation. Retention
rates are strongly affected by investment performance (as noted in Figure 5), distribution channel, customer
type, as well as by the investors objectives and investment horizons.
Financial intermediaries selling to retail investors appear to generate the highest levels of AUM churn (i.e.
lowest retention rates), whereas institutional investors appear to be more patient (higher retention rates).
Retirement products for retail investors, where there is a considerable degree of buy-and-hold investing,
typically reflect solid retention rates as well. Closed-end funds exhibit virtually the best possible retention
attributes because unlike open-end funds, they are not redeemed by the manager, but instead are exchange
traded.
The presence of contractual investing agreements such as lock ups and redemption gates can be quite
beneficial for institutional and alternative investment managers, where such mechanisms are not uncommon.
For managers where flows are very lumpy, a multi-year look back of prior retention rates may be appropriate.
Figure 11 outlines the expectations for each of the metrics in the Diversification and Retention AUM factor.
Figure 11: Summary of Relevant Metrics

Diversification & Retention of AUM
Aaa
Aa
Baa
Ba
Caa
<
80%
80% - 60%
60% - 45%
45% - 30%
30% - 20%
20% - 5%
<=
5%
<
80%
80% - 60%
60% - 45%
45% - 30%
30% - 20%
20% - 5%
<=
5%
Retention Rate
>= 90%
90% - 85%
85% - 80%
80% - 75%
75% - 70%
70% - 65%
<=
65%

Why It Matters
The financial flexibility factor measures an asset managers capacity to fund business growth, to maintain
capital market confidence, and to demonstrate an ability to service debt obligations without stress. Acquisitions
are among the more common reasons for asset managers to issue debt, but share buybacks, dividend
distributions, management buyouts, monetization of an ownership stake, investing in, or lending to, funds, as
well as regulatory capital management may all be additional reasons. Our financial flexibility metrics evaluate
an asset managers ability to achieve its financial objectives as a business. The cash-generating strength of
asset management businesses, and the modest level of capital required to operate the business, lead us to
11
Rating Methodology

focus on EBITDA-based metrics for financial flexibility evaluations rather than pure balance-sheet measures,
such as total debt / capital.
The self-managed funds metric measures the level of a firms investment exposure to its self-managed funds.
An asset managers financial flexibility can be constrained or subject to additive stress if it has invested
significantly in the same funds that it manages. This can occur because, under stress circumstances, its feebased revenues and its equity capital will be more highly correlated than if the firm had been invested in other,
lesser correlated assets. As such, the company is leveraged in its exposure to a downside stress scenario in
its fund performance.
Relevant Financial Metrics

Financial Leverage:
Total adjusted debt / EBITDA
Debt will be adjusted for pensions, leases, and hybrid qualities.

Earnings Coverage:
EBITDA / Interest expense and preferred dividends (5 year average or pro forma)
Self-Managed Funds:
Self-managed investments / Shareholders equity
Interpreting the Financial Metrics

Total adjusted debt / EBITDA and EBITDA / interest expense are each measures that are well-recognized
metrics for financial leverage and coverage. They utilize rating ranges that generally correspond to ranges in
other Moodys rating methodologies. Our objective is to measure total debt relative to the firms earnings
capacity, where EBITDA is our main earnings indicator. The ratio of total debt divided by the firms EBITDA
implicitly measures the number of years that annual earnings are required to cover total debt, ignoring capital
structure and taxes regime. (EBITDA is subject to different calculation methods and interpretations, so we
provide a discussion of EBITDA in Figure 12.)
Higher leverage levels, normally indicated by total debt / EBITDA over 3x, or EBITDA / interest expense under
4x, will normally be indicative of below-investment-grade ratings. Pro forma values are used to calculate these
metrics for recapitalizations and other balance sheet-transforming events, or whenever we need to be more
cognizant of prospective leverage trends. An average of the past five-years of EBITDA / interest will be used to
capture coverage through debt cycles, so long as the past performance is indicative of our expectations.
Total debt includes short and long-term debt and hybrid capital securities (adjusted for Moodys Debt/Equity
Continuum), as well as unfunded pension obligations and operating leases. Adjustments to debt in the asset
management industry are limited because most companies have modest, or no, pension or lease obligations.
Interest expense normally will include payment-in-kind interest, which is sometimes used in leveraged
acquisitions of asset managers.
Large cash balances or other liquid assets maintained at the asset manager can improve the financial
flexibility of the firm, but to a limited degree. Some firms maintain a large, excess 7 cash balance as a reserve
for future acquisitions or for regulatory-driven liquidity requirements for broker dealer operations 8 . In general,
excess cash balances will not create significant upward rating pressure. This is so because there are few
reasonable assurances that the capital will be available in the future if the firm comes under severe stress.
We additionally consider a companys commercial paper program, back-up credit facilities, letter-of-credit
arrangements and the covenants embedded in all borrowing arrangements. Strong back-up facilities with
limited restrictive covenants or material adverse change (MAC) clauses will enhance the financial flexibility of a
company in times of stress.
12
Excess cash can be uniquely defined for each firm, but typically, it will be will be cash above the amount needed for working capital, regulatory
requirements, and any other future needs or management preferences.
For some rated asset managers, the amounts constrained by regulators have been very significant. In the US, all registered broker dealers are
required by the NASD Uniform Net Capital Rule (15c3-1) to maintain a prescribed amount of liquid capital. Similar regulatory capital requirements
are common outside the US. Capital may also be constrained for periods by regulars as a penalty for allegations of wrongdoing.
Rating Methodology

The self-managed funds metric is a measure of how much the company ties its fortunes to risks that are
typically passed onto investors. Generally, if the firm and its key employees have skin in the game, it is
favorable because interests are aligned, but rarely is it a differentiator in a positive sense. From a creditors
perspective, the stability of the asset managers balance sheet regardless of the impact of a down market on
its revenue and income stream should drive higher ratings. Poor investment fund performance that directly
reduces fee income and depletes the firms financial assets creates greater volatility and diminishes the credit
strength of the firm.
Furthermore, when managers have great sums at stake, the likelihood of taking on incremental risk to improve
their positions is often increased. Thus, we typically see firms with higher balances of investments in their own
managed funds as being more risky 9 . Firms that have a high amount of self-managed investments on their
balance sheet would also be expected to have strong risk management capabilities, particularly if they are
hedge fund managers. Figure 13 outlines the expectations for each of the metrics in the Financial Flexibility
factor.
Figure 12: EBITDA Calculations

Our EBITDA calculations for asset managers are intended to measure core earnings capacity more so than
cash flow. Thus, the vast majority of normal operating accruals (cash and non cash) will be included in our
EBITDA.
Our basic EBITDA formula: Pre-tax, pre-interest operating income + depreciation & amortization
Whats included in EBITDA
Non-cash stock option expenses will be included in EBITDA. We make no adjustments to EBITDA for option
expenses because we believe that over the long term, most companies will buyback shares (a cash event)
to offset share dilution due to option exercise.
Amortizations related to management fees, distribution expenses and/or contingent deferred sales charges
(CDSC) for early fund withdrawals will be included in EBITDA. Even though these amortizations appear as
adjustments to the cash flow from operations, Moodys does not add back these amortizations to operating
income because they are part of normal course business and involve reasonable estimations of cash flows
that will eventually be received and or disbursed.
Whats NOT included in EBITDA
Non-operating items, such as investment income (dividends, interest income and realized and unrealized
gains on sales of assets) are normally excluded from EBITDA unless there is a compelling rationale to do
otherwise (see special EBITDA considerations below).
Non-recurring expenses, whether they be cash or non-cash, including fines, impairments, restructuring
charges or acquisition-related expenses will normally be excluded from EBITDA.
Special EBITDA considerations for asset managers with large

investments in own funds or large capital reserves
Certain asset managers, such as alternative investment managers, will tend to be co-invested with their
investors to a greater degree than traditional asset managers which have a heavy mutual fund component to
their business. Therefore, for alternative investment managers, where co-investing is essential to the business
model, performance-based fees, carried interest in funds, or other investment related-income will typically be
included in EBITDA, but on a conservatively chosen, normalized basis. In stressing such cases, we will often
either eliminate or substantially haircut any performance-based fees.
Firms that have negative equity are automatically scored at a single-B level for this metric.
13
Rating Methodology

Figure 13: Summary of Relevant Financial Metrics
Financial Flexibility
Aaa
Aa
Baa
Ba
Caa
Total Debt / EBITDA
<
0.2
0.2 - 1
12
2-3
3-4
46
>= 6
EBITDA / Interest
>=
16
16 - 12
12 8
84
42
21
<= 1
2.5%
2.5 - 7.5%
7.5% 15%
15% - 25%
25% - 40%
40% - 60%
Managed Investements/Equity
<
>=
60%

Why It Matters
An asset managers profitability is a critical component of its creditworthiness because the level, quality, and
sustainability of earnings are key determinants of a firms capacity to convert revenues into capital available for
the firms creditors, as well as being vital to access to the capital markets on favorable terms. Stable revenue
growth also provides firms with preferable terms for accessing the capital markets and a better ability to
service and pay down debt.
Relevant Financial Metrics

Net Income Margin:
Net income divided by adjusted gross revenues (5 year average) 10
Stability of Revenue Growth:
Mean of the companys growth rate of revenue divided by the standard

deviation of growth rate of revenue (using the 20 prior data points of quarterly,
year-over-year revenue growth rates)
Interpreting the Financial Metrics

In general, higher rated companies tend to have higher net income margins; they also have smaller earnings
and less revenue volatility than lower rated companies. The measure for net income margin incorporates all
aspects of the firms operating efficiency, including its tax regime.
Net income margins for most asset managers tend to be strong, even for lower rated firms. Alternative
investment managers will score high in profitability because of their higher fee structures and they can
receive credit here for their higher revenue yields if their expense base is managed well. Margin performance
can reflect the high levels of operating leverage that can be achieved in the industry, particularly for the larger
firms.
In the calculation of net income margin, gross revenues are used, and are adjusted to include interest and
dividend income and investment gains and losses. For most firms, such income items are shown on the
income statement below the operating income line.
It should be noted that investment gains/losses can at times be somewhat volatile and unpredictable
(especially if the company has significant investments in managed funds). Such sudden gains and losses may
also be masking a negative trend in a firms underlying operational performance. Obtaining a net income
margin that reflects a steady rate level is most relevant for our analysis, so we will either use pro forma or
forecasted values for a prospective view or a five-year historical look back, if such an average reflects our
views of the longer run performance capacity of the firm.
Comparing two firms operating efficiency by using net income margins (as opposed to pre-tax operating
income margins) is not a consistent comparison. For instance, one firm may be tax advantaged (such as firms
organized as limited partnerships or firms domiciled in tax havens such as Bermuda), but tax considerations
can be reasonably used to advantage a companys credit profile.
10
14
Revenue will be adjusted to include gains and losses from investments, as well as interest and dividend income.
Rating Methodology

Our measurement of a firms revenue stability gauges the volatility in a companys revenue and helps us to
formulate an opinion about the predictability and sustainability of the firms overall business. The metrics
analytic value has little meaning on its own, but it is useful in comparing a firms revenue stability relative to
other firms and in evaluating trends. Higher values (more stable growth) are achieved through more vigorous
growth rates relative to the standard deviations of growth rates over the measurement period. Note that this
measure accounts for both growth (in the numerator) and volatility (in the denominator) 11 .
If the average growth rate of revenue for a company is negative over a five-year period, then we simply use
that average growth rate result as the score. In all cases where the average revenue growth is negative, the
companys score will be below investment-grade regardless of volatility, with more negative values resulting in
lower ratings. In evaluating this metric, we may give more weight to the companys recent performance trend if
we believe the company has demonstrated a clear, sustainable turn-around in its revenue performance. Figure
14 outlines the expectations for each of the metrics in the Profitability and Stability factor.
Figure 14: Summary of Relevant Financial Metrics

Profitability & Stability
Aaa
Aa
Net Income Margin (5 yr Average)
>
40%
40% - 25%
Stability of Revenue Growth (20 qtr)
>=
300% 300% - 200%
Baa
Ba
25% 17.5% 17.5% - 10% 10% - 5%

200% 100%
100% 0%
For positive revenue growth rates,

use stability ratio scoring
B
5% 0%
0% -10% -10% -20%
Caa
<=
0%
< - 20%
For negative revenue growth rates,

use % revenue decline scoring
Other Considerations in Determining the Long-Term

Debt Ratings of Asset Management Firms
Factors that are not well suited for quantitative measurement (e.g. corporate governance), or factors that will
not apply to every situation (e.g. acquisition-oriented business strategy) are also evaluated as part of
determining the firms stand-alone credit rating.
It would not be unusual for the qualitative factors outlined below to affect the firms rating, but many of the
factors included below tend to be overall rating neutral because they usually do not influence the credit profile
significantly.
Management, Governance, and Risk Management

Given all the various inputs, the influence from management, governance, and risk management on ratings is
subjective. That said, Moodys has a general presumption that management is competent, governance is
effective, and risk management protocol and procedures are appropriately designed and working.
We meet at least annually with members of management, and at times board members, in order to test this
working assumption. Management characteristics, corporate governance, and risk management, are all
carefully considered in every rating evaluation, but they do not typically positively or negatively differentiate
firms, and as such, these factors do not typically affect ratings 12 . Several considerations with regard to each of
these facets of firms are outlined below.
11
12
15
Note that the stability of revenue growth is the inverse of the coefficient of variation of quarterly revenue growth rates.
For research regarding corporate governance specifically, see Moodys Special Comment: Assessing Corporate Governance As A Ratings Driver
For North American Financial Institutions, April, 2006 (#97279) for further information.
Rating Methodology

Management Characteristics
Management quality underpins corporate success or failure, and it has the potential to significantly influence
our evaluation of a firm. Assessing management quality first involves examining the experience, track record,
and success of management. Preferably, the evaluation will be supported through clearly identifiable actions
that are helping to sustain a companys franchise, earnings, and capital position. The absence of one-time
financial events, the avoidance of frequent changes in strategy, and the organizations financial and business
flexibility can add to the assessment. Further supporting our opinion of managements quality may be the track
record in considerations such as fund flows, investment performance, and profitability. Throughout the rating
process, Moodys forms an opinion of a management teams likely response to challenges in the firms
economic, competitive and regulatory environment, given their goals and motivations.
The overall corporate strategy also may play an important role in our opinion of the companys management
quality. Managements ability to develop a strategic vision and its ability to execute that vision are both critical
factors for a companys success in a competitive industry where the status quo is changing rapidly. A review of
the asset managers strategy includes the following elements: (a) managements long-term vision; (b) the riskreturn appetite; (c) the competitive environment; (d) the market dynamics; (e) the attitudes towards financial
leverage; (f) strategies for raising capital; and (g) views of shareholder value creation.
Growth strategies acquisitions/divestitures, joint ventures/strategic alliances, etc. and their rationales are
also included in the assessment of corporate strategy.
Corporate Governance
Incorporating corporate governance into the rating evaluation includes gaining an understanding of the boards
independence, expertise, and involvement, as well as its ability to align governance practices with proper
oversight of the management team and corporate strategy. Independent reviews of the key financial reporting
and risk management processes are important, as is oversight of compliance and regulatory issues.
The board plays a central role in ensuring that management sets the appropriate ethical tone within the
company. Compensation schemes and the boards oversight of compensation practices are also considered
for their potential impact on managements motivations. Plans that reward management and employees for
building long-term value in the company tend to be viewed positively from a credit perspective.
Moodys also contemplates the interests, motivations, track-record, and resources of large shareholders in
order to anticipate how they may be expected to behave and respond with regards to their investment, both in
the normal course of events and in times of stress. The often-conflicting interests of shareholders and creditors
are also taken into account when considering an asset managers governance. A reasonably balanced
approach that meets both constituents in a fair manner is expected for higher rating levels.
Risk Management
Managements and the boards abilities to identify, monitor, manage, and mitigate risks to the company go to
the heart of its success in minimizing unexpected events and volatility and in protecting the interests of its
creditors and other stakeholders. Taking risks, whether in investment, sales practices, acquisitions, or other
areas, is a necessary activity for an asset management firm. However, it is vitally important that management
(and the board of directors) fully understand the risks assumed and engage in active measures to manage
those risks in order for the company to maintain its financial performance and flexibility, reputation, market
position, and confidence in the capital markets. The risk management discipline at an asset management firm
will be of higher importance for firms where the financial assets of the firm are placed more at risk.
16
Rating Methodology

Regulation & Litigation
Regulation
Money management is not as highly regulated as the banking or insurance industries, but it is still typically
very closely watched by market regulators. Regulators can significantly affect the ability to conduct business,
and they have imposed very heavy fines on firms in the past. When regulation begins to affect ratings is when
we feel that it could materially disrupt the firms flows for a prolonged period, or if we feel that the firm may lose
significant financial flexibility in paying a fine.
Litigation
Asset management firms, particularly US-based firms, have operated in an increasingly litigious environment.
Often, this is a result of rogue employees, poor judgment, or misunderstandings with counterparties.
Arbitration panels are increasingly being utilized to avoid costly and lengthy court battles with employees who
increasingly are under employment contracts.
Where contingent liabilities may begin to influence ratings is not dissimilar to the regulation cases. If the
liabilities could significantly impair further ability of the firm to conduct business or may significantly impair the
financial flexibility of the firm, rating action will be likely.
Accounting Policy & Disclosure

Relevant and timely financial information is a critical part of any financial analysis. Although most asset
management companies prepare financial information under US GAAP or IFRS, financial information may also
be presented with management adjustments or with certain exclusions, which may differ from generally
accepted accounting principles. For some asset management companies, this information may be heavily
relied on for the basis of our rating determinations.
Some companies have chosen to provide easy access to their own financial data, which Moodys views
favorably. The consistent reporting and application of guidelines with accounting is a fundamental presumption
of financial analysis. When evaluating accounting principles, we consider how well financial reporting mirrors
economic reality. Where we believe the economics of a firm, structure or transaction are not consistent with
financial reporting, we will adjust financial statements to conform to the specific needs of our analysis.
Support from a Parent Company or Affiliate

The above factors are critical in order to determine the stand-alone rating of asset management companies,
but the analytic consideration of support explicit or implicit from a parent company or affiliate is
necessary to get to the public rating, which may be higher than the company's stand-alone rating. Ultimately,
the extent to which the affiliation benefits the rating is a matter of judgment, not convention, owing to the large
number of variables that must be considered.
In examining implicit support, we consider the supporting entitys willingness and ability to support based on
our view of its credit strength and how important the asset manager is to the overall enterprise from a
branding, management, and operational perspective. If the support is made explicit through letters of intent,
contracts or other such written agreements, we will consider the legal quality and enforceability of the support,
as well as the possibility for termination.
Any such support, once determined, provides ratings uplift by narrowing the spread between the stand-alone
credit rating of the entity/security and the rating of the entity providing the support.
17
Rating Methodology
Appendix I
Using the Methodology as a Rating Predictor Model
As a complement to detailed fundamental analysis necessary to
develop an asset management firms senior debt rating, Moodys
has used the backbone of the rating methodology presented to
develop a Rating Predictor Model. This can be useful as a guide to
estimating the likely range into which an asset managers rating
may fall, based on reference to the various rating level guidelines
outlined with this methodology.
The rating predictor model is composed of the 12 metrics outlined
in this methodology. Each metric is scored on a scale of 1 - 18
(with 1 being the best score, and 18 the weakest) based on the
metrics expectations for given rating levels.
Each factor is evaluated, and then weighted according to its
importance within Moodys rating approach for the industry
generally using the factor weightings shown in Figure 16. A
weighted average of all the factors is calculated, which is mapped
back (based on a mid-point convention) to the Aaa through Caa
rating scale. The resulting rating is an objective, quantitatively
derived stand-alone senior debt rating before management and
governance, regulation and litigation, and accounting policy and
disclosure considerations are taken into account.
Figure 15: Score

Rating Score Conversion
Rating
Number
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
10
Ba1
11
Ba2
12
Ba3
13
B1
14
B2
15
The weightings shown in Figure 16 are a subjective assessment of

B3
16
the relative importance of the factors and metrics in our assignment
Caa
18
of ratings to asset management companies. These may be
adjusted when certain circumstances overwhelm other factors. One possible example would be weighting the
financial flexibility higher than 25%, and then reducing the weights of other factors when evaluating a very highly
leveraged firm.
Figure 16
Factors for Asset Managers
Factor 1 : Market Position
Assets Under Management Market Share
Weightings
Subfactor Weightings Within

the Factor Weighting
20%

Factor 2 : Distribution & Services
50%
20%
50%
Factor 3: Diversification & Retention of AUM
50%
20%
33.3%
33.3%
Retention Rate
33.3%
25%
Total Debt / EBITDA
60%
EBITDA / Interest
20%
Self-Managed Investments / Equity

18
50%
20%
15%
Net Income Margin
50%
Stability of Revenue Growth
50%
Rating Methodology

The rating predictor model may be useful for hypothetical situations, such as when a company is seeking to
understand the rating implication of additional financial leverage. For example, if a company with total debt /
EBITDA of 1.25x scoring in the A range, were to increase its total debt / EBITDA to 2.25x, the metric score
would fall to the Baa range. Given the weightings outlined in Figure 16, the impact to the final rating could be
approximated if all other considerations were equal.
Each metric is primarily calculated (or reasonably approximated) based upon public information. Non-public
financial data or public financial data may be modified because of accounting and reporting formats in other
than IFRS or US GAAP financials may be also be used, but will not be reported publicly.
We note that when comparing results of this model to Moodys actual senior debt ratings, the rating predictor
models accuracy is high with 13 out of 15 (87%) of the model results are within one notch of the actual
ratings. The remaining model ratings are within three notches of the actual senior debt ratings. (See Figure 17
for a graphical view out of models accuracy.)
Differences between the model ratings and actual ratings may exist: after all, analytic judgments vary
regarding the weightings of the factors, the interpretation of the metrics, the importance of other
considerations, or considerations of unique fundamentals of the company not appropriately captured or
weighted by the model. The rating predictor model, like market-implied ratings, is another input into the rating
process that offers an alternative perspective to the analysts rating recommendation.
Figure 17: Asset Management Firm Raw Rating Scorecard Accuracy

Data points: 15
9
8
8
Number of Firms
7
6
5
4
4
3
2
1
1
-
7%
0%
7%
53%
27%
7%
0%
-3
-2
-1
# Notches that the Predicted Rating is Low er (-) / Higher(+) vs. Actual
19
Rating Methodology
Moodys Related Research

Special Comment:
Assigning Unsecured Credit Ratings to Hedge Funds, April 2007 (102552)
Rating Methodology-Hedge Funds:

Moody's Approach to Evaluating and Assigning Operations Quality Ratings to Hedge Funds, June 2006
(SF77845)
Rating Methodology-Investment Holding Companies:

Investment Holding Companies, October 2007 (104817)
Special Report:
Moody's Approach to Evaluating and Assigning Investment Manager Quality Ratings to Asset Management
Companies, August 2005 (SF60845)
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication
of this report and that more recent reports may be available. All research may not be available to all clients.
To order reprints of this report (100 copies minimum), please call 1.212.553.1658.
Report Number: 104923
Author
Production Specialist
Matthew Noll
Nita Desai
Copyright 2007, Moodys Investors Service, Inc. and/or its licensors and affiliates including Moodys Assurance Company, Inc. (together, MOODYS). All rights
reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR
OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED
FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY
PERSON WITHOUT MOODYS PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODYS from sources believed by it to be accurate
and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided as is without warranty of any
kind and MOODYS, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness
for any particular purpose of any such information. Under no circumstances shall MOODYS have any liability to any person or entity for (a) any loss or damage in
whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of
MOODYS or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication,
publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without
limitation, lost profits), even if MOODYS is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information.
The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as,
statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO
THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR
OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODYS IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be
weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly
make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider
purchasing, holding or selling.
MOODYS hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and
preferred stock rated by MOODYS have, prior to assignment of any rating, agreed to pay to MOODYS for appraisal and rating services rendered by it fees ranging
from $1,500 to approximately $2,400,000. Moodys Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moodys Investors Service (MIS), also
maintain policies and procedures to address the independence of MISs ratings and rating processes. Information regarding certain affiliations that may exist
between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in
MCO of more than 5%, is posted annually on Moodys website at www.moodys.com under the heading Shareholder Relations Corporate Governance Director
and Shareholder Affiliation Policy.
20

Moody's Methodology For Asset Management Firms

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18 Matthew Noll, CFA

Moodys Global Rating

Vice President - Senior Credit Officer

Because this methodology applies to asset management firms globally, it is

Group Managing Director

Timour Boudkeev, CFA

This methodology applies to asset management firms that receive management

Moodys Global Asset Management

Moodys Global Rating Methodology for Asset Management Firms

Figure 1: Asset Management Firm Rating Factors

Factor 1: Market Position

Factor 4: Financial Flexibility

Factor 2: Distribution & Services

Factor 5: Profitability & Stability

Factor 3: AUM Diversification & Retention

Moodys Universe of Rated Asset Management Firms

Asset Management Firm Rated Universe Distribution of Public

Moodys Global Asset Management

Moodys Global Rating Methodology for Asset Management Firms

AUM ($US) Domicile

Franklin Resources, Inc.

Fidelity International Ltd.

Legg Mason, Inc.

Eaton Vance Corp.

Nuveen Investments, Inc.

Man Group plc

Waddell & Reed Financial, Inc.

GAMCO Investors, Inc.

Janus Capital Group Inc.

Gartmore Investment Management plc

GSCP (NJ) L.P. (GSC Inc.)

Framework for Rating Asset Management Firms

Moodys Global Asset Management

Moodys Global Rating Methodology for Asset Management Firms

Rating Summary Profile

Figure 4: Rating Summary Profile

Score Adj. Score

Market Share of AUM

Market Share of Gross Flows

Diversity of Product Classes

Diversity of Customer Type

Profitability & Volatility (15%)

Net Income Margin

Stability of Revenue Growth (20 qtr, YoY)

Moodys Global Asset Management

Moodys Global Rating Methodology for Asset Management Firms

Key Rating Factors - Business Profile

AUM / Market AUM

Market Share of Gross Flows:

Gross Flows of AUM / Market Gross Flows of AUM

Interpreting the Metrics

Gross fund flows may also be referred to as gross fund sales.

Moodys Global Asset Management

Moodys Global Rating Methodology for Asset Management Firms

Figure 5: Investment Performance: Does it affect ratings?

Figure 6: Summary of Relevant Metrics Market Position

Assets Under Management Market Share

1% - 0.5% 0.5% - 0.05% < 0.05%

Market Share of Gross Flows

1% - 0.5% 0.5% - 0.05% < 0.05%

Factor 2: Distribution & Services

Moodys Global Asset Management