UK - Gartmore Investment Management has branded credit ratings agencies as an "axis of evil" that forces both schemes and bond issuers into poor decisions.
The fund manager said ratings agencies, such as Fitch, Standard & Poor’s and Moody’s, are “far too powerful” in the market.
And it added that these firms should not be allowed to charge investors for their research because they have a “semi-regulatory status” and can distort the market with their data.
Head of credit research Karl Bergqwist said it is “unreasonable” for agencies to first create price-sensitive information, and then disclose that information to only those in the market that are willing to pay for it.
He claimed that while there is a high degree of market regulation for equity research, the same cannot be said for analysts employed by the ratings agencies – the agencies “answer to no one” and there is no way to safeguard the quality of their analysts’ work.
“The rating system today is disruptive to systemic stability and rogue rating actions destroy value for investors, force investment managers to make sub-optimal investment decisions and force bond issuers to make sub-optimal operational decisions.”
One leading bond manager agreed. The manager – who declined to be named – said: “Who supervises the rating agencies? They have a fantastic effect on what happens in the market, and they can’t be sued for anything that they write about companies, they are almost untouchable.
“What clients should understand is that credit agencies are imperfect, and that we should have more flexibility when setting bond mandates to take account of the fact that they are not perfect.
“Clients can be very specific as to what they won’t have and at the end of the day, it can make life very difficult for us.”
But Fitch group managing director Paul Taylor said the reason why agencies are “supposedly” so powerful is “because investors use our products”.
He added: “The mere fact that we’re getting criticism really comes down to the fact that ratings have been proven to be a useful and valuable part of the markets’ information and intelligence.”
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