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Abu Dhabi, UAEThursday 13 December 2018

Moody’s downgrades Mashreq Capital’s investor management rating on high CEO turnover

Dubai-based asset manager has had four chief executives since 2016

Dubai-based Mashreq, one of Dubai's oldest lenders, says it has direct and indirect exposure to Abraaj Capital. Reuters
Dubai-based Mashreq, one of Dubai's oldest lenders, says it has direct and indirect exposure to Abraaj Capital. Reuters

Rating agency Moody’s has downgraded the investment manager quality assessment of Mashreq Capital, the asset management arm of Dubai-based Mashreq Bank, primarily for high turnover of chief executives at the firm.

Mashreq Capital, which manages bond, equity and open-ended funds, has had four chief executives since 2016.

“The high CEO turnover has had a direct impact on the company’s ability to execute on its strategic business initiatives,” Moody’s said.

Mashreq Capital’s investment manager quality assessment was downgraded to MQ3 from MQ2 – although it still reflects Moody’s overall view the firm has “good” asset management characteristics.

The senior management turnover, however, has led to a “weakening in management quality”, the rating agency said.

Following the departure of the company’s first chief executive Abdul Kadir Hussain in 2016, there was an interim CEO followed by a CEO recruited from outside the organisation, Christophe Pella, until the company settled for a longstanding member of the Mashreq Capital management team, Robert Hahm, who was previously fixed income senior portfolio manager.

The downgrade was also attributed to a decline in assets under management to $1.3 billion, from $1.5bn at the end of 2016, and continued weak investment performance of its equity products – which could prevent the firm from attracting new inflows in this segment, reducing asset class diversification, according to Moody’s.

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However, the firm remains adequately able to support its investment management activities, and the rating reflects the strategic and operational backing provided by its parent company, Mashreq Bank.

In addition, the “robust track record of Mashreq Capital’s fixed income funds partly offsets these negatives and supports the [previous] MQ3 rating".

“The fixed income funds represent the majority of Mashreq Capital’s assets under management and have outperformed both benchmarks, as well as most local peers,” Moody’s said.

The assessment could improve if assets under management display sustainable growth, risk-adjusted results are maintained over a long period, and if the firm’s assets and client base become more diversified.

But further senior level departures, any significant deviation from company procedures, and a further decline in either assets under management or the risk-adjusted performance of funds, could threaten Mashreq Capital’s assessment, Moody’s said.

Mashreq could not be reached for comment.