Regulated Funds & Fund Managers: A Credit Perspective

Course Objectives

The goal of the one day workshop is to equip participants with a structured analytic framework for the analysis of regulated mutual funds and pension funds and fund managers.

Specifically participants will be equipped to:

• Distinguish key fund types and structures both locally and internationally
• Identify the roles of key parties to a fund: fund manager, trustee, custodian, administrator etc. and the due diligence required to assess risk management and controls
• Use key performance indicators to benchmark performance and credit standing of both funds and fund managers
• Understand the importance of the regulatory and supervisory framework (e.g. 1940's Act and UCITS) and the impact of changing regulations on both mutual and pension funds
• Structure exposures to funds and fund managers in order to minimise credit risks.

Target Audience

Commercial and investment banking professionals responsible for credit risk management and origination. The workshop is also appropriate for a wider audience of risk managers, consultants, bankers, regulators and other professionals who need to understand the key risk issues of the fund management industry.

This workshop can be taken alone, as part of the three day workshop Non-Bank Financial Institutions, or combined with the two day workshop: Hedge Funds: A Credit Perspective. Participants may also be interested in attending Counterparty Credit Risk in Derivatives

The majority of Fitch Training programmes are offered at an intermediate and advanced level. There are no specific prerequisite courses to attend our programmes, however some topic knowledge maybe required. Please refer to the target audience to see what level of prior knowledge is required for a specific course.

Content

INDUSTRY OVERVIEW

Orientation

• Types of fund - pension funds; regulated mutual funds, managed accounts, closed ended funds and investment trusts, tracker and exchange traded funds (ETFs), fund of funds, master feeders, REITs etc.
• Structure and legal status of funds and managed accounts

Investment strategies

• Investment strategies - risk profile of strategy, policies, practices and restrictions
• Traditional strategies - fixed income (money market, bond, municipals) equity and specialist funds; growth, value and balanced strategies; capital guaranteed structures
• Alternative investment strategies: use of derivatives and leverage; liability driven investment (LDI) strategies for pension funds

ANALYTIC OVERVIEW

Structured approach to analysis

• Purpose of transaction and sources of payback - Who is the counterparty? What assets or derivatives are being financed? How will the transaction be settled or the debt repaid at maturity?
• Risk analysis - operating environment, financial fundamentals and management
• Structure - risks and mitigants of the transaction

Perspectives on analysis

• Fund ratings - rating agency approach, Morningstar and other ratings
• Information sources - prospectus, financial statements, portfolio statements

RISK ANALYSIS

I. OPERATING ENVIRONMENT

Macro and competitive drivers

• Sub-sectors of the industry - institutional, retail, wealth management
• Competitive drivers - sources of advantage

Regulation and supervision

• Regulation and supervision by region (focus depends on location of workshop - US: 1940's Act; EU: UCITS; Asia: various)
• Mutual fund regulations - investment and leverage restrictions, disclosure
• Pension fund regulation - funded status; investment limitations
• Fund manager regulation; capital adequacy, licensing, business practices

II. FINANCIAL FUNDAMENTALS

• "S": Size - reviewing size, diversification and market position of fund
• "M": Market risk - volatility measures e.g. standard deviation, VaR
• "A": Asset quality - liquidity and valuation of assets, haircuts
• "L": Liquidity - redemption risk on open ended funds
• "L": Leverage - use of financial and derivative leverage; funded status for pension funds
• "P": Performance - bench marking performance - NAV measures, information and Sharpe ratios

III. MANAGEMENT

Key parties

• Roles and responsibilities of various parties: manager, trustee, directors, administrator, custodian etc.

Due diligence fund manager

• Business structure - staff and organisation - experience levels; size, affiliation
• Independence and controls - affiliation; conflicts of interest
• Investment process - structure and implementation of portfolio management decision making
• Risk management - operational, market, credit and regulatory risk
• Communication - disclosure and client relationship management

Fund manager as counterparty

• Purpose payback - Why do fund managers borrow and how do they service debt?
• Risk profiles of different business models
• Financial analysis
• Performance measurement
• Cash flow analysis
• Balance sheet strength
• Early warning signals of troubled credits

STRUCTURE

• Structured approach - using the purpose payback model to evaluate challenging transactions
• Types of risk when dealing with funds - credit, market, operational, reputation
• Exposure profile - assessing the appropriateness of the structure in terms of amount, maturity etc.
• Ranking - establishing and maintaining a senior position
• Safeguards - documentation (e.g. ISDA) and collateral.

Workshop Times