SQM Research defends ratings process
Research and ratings house SQM Research has expressed concern that its ratings processes with respect to the Shield and First Guardian funds have not been reported in an accurate context.
SQM Research founder and managing director, Louis Christopher responded to media coverage of the issue by stating that under his firm’s methodology the ratings of the two funds had been at the lower end of the scale.
Further, he noted that the ratings assigned to the funds were below the minimum threshold of many platforms for inclusion.
“Some recent media coverage has not presented our ratings in full or accurate context,” he said in a message to clients and on social media.
“SQM Research assigned ratings between 3.5 and 3.75 stars out of 5 to the above-mentioned funds over their lifecycle. These ratings reflected an ‘investment grade’ classification under our methodology, but they were at the lower end of that scale,” Christopher said. “Ratings in this range may reflect characteristics such as limited operating history or areas of governance requiring monitoring. It’s also important to note that many platforms set a minimum threshold of 4 stars for product inclusion.”
“Both funds were subsequently downgraded when we became concerned about limited disclosure, irregularities, and a lack of information from the fund managers.”
Christopher said that publicly available commentary and statements from various parties “suggest that the failure of the funds may involve irregularities in investment activities and the movement of investor funds”.
“It appears that these matters may not have been fully disclosed to ASIC, investors, advisers, platforms, or SQM Research. We understand that ASIC has been investigating these matters for a significant period of time and that questions remain,” his message said.
“We’ve been in ongoing contact with our adviser and platform clients, and we appreciate their continued trust and understanding. We remain available to support all stakeholders during this period and welcome any questions regarding our research process or individual ratings,” Christopher said.
SQM Research is the research partner for Financial Newswire’s Fund Manager of the Year Awards.
They gave at least 70% of the maximum rating, and are trying to wash their hands of responsibility by saying it was at the “lower end of the scale”?
This sounds as nonsensical as ratings houses that give “top balanced fund” rankings to super funds with 79% growth assets. (Even higher in some cases).
If respected ratings houses do good quality research, but then use misleading labels for marketing purposes, it’s inevitable there will be bad decisions made by people trusting those misleading labels.
Rubbish. Their ratings scale and methodology is for all the world to see on their website. Over 70% of what they rate, rates above 3.75.
It shouldn’t be necessary for nuance; 3.5 and 3.75 is not at the lower end of the scale 0 to 5.
So true Simon.
Yet Canberra’s corrupt bureaucrats allow – Hesta’s Balanced Fund with APRA Heat map stated 94% Growth Assets to be named:
Yep a “Balanced Fund”
How’s the nuance : – /
Louis, you rated the Shield Master Funds as 3.75 stars out of 5. This rating’s label was called “Favourable” and included the statement there are no corporate governance concerns or they are minor in nature.
The fund failed due to corporate governance.
You are shifting the definition of your ratings only now to try wiggle yourself out of this. Man up, take some accountability and stop trying to re-write the dictionary as the word Favourable does not equate to Avoid.
Hmmn. The scale of their ratings seem to be clearly defined on their website. The ratings are for advisers only so there is an expectation advisers will, you know, look up what the ratings mean and read the report. It was at the lower end of their investment ratings spectrum. That’s why most platforms draw the line at 4 stars or above. And then when SQM smelt a rat, they downgraded. Seems to me some groups are trying to hide behind this rating?
I’m so sorry that I don’t understand English it seems. Could you translate what this meant in your 3.75 star ratings: There are no corporate governance concerns, or they are of a minor nature.
Does that mean there are corporate governance concerns and that advisers shouldn’t recommend it?
With all the information given at the time, such as audited reports, SQM made the best judgement possible. Indeed they were prompt to move when they smelt a rat. Fraud is not easy to find, especially when there are third party reports given to SQM signing off on compliance and financials.
couple of things. these rating houses need to have a scale the average joe understands. don’t use a ranking in numbers – like 1 being fail and 5 being awesome. use this:
rating 1 = Rubbish Avoid
rating 2 = do better
rating 3 = barely passes
rating 4 = Pass
rating 5 = Best
help the retail investor out and talk in a language they understand. Using assigned ratings between 3.5 and 3.75 stars out of 5 to me (and I have 30 yrs experience) is a sound pass of the product and yet the boss of this outfit now says these ratings reflected an ‘investment grade’ classification under our methodology, but they were at the lower end of that scale. a rating of 2.5 is at best the mid point of the scale and saying they come in at 3.5 to 3.75 is IMO a thumbs up. He’s outfit should have at best rated them at 2.5 if not lower. Anyone with a basic understand of how those products worked would have known they were rubbish and should have been avoided. The fact there were active promoters pushing this product was a massive red flag.
Regardless, they recommended it as an investable product when it should have been rated a 0. Did they contact/report to ASIC when both funds when they became, “concerned about limited disclosure, irregularities, and a lack of information from the fund managers”?
Why would you say anything unless you want to write an open invitation from a plaintiff litigation vulture.
Where does it say 3.5 to 3.75 = Warning, likely MIS Ponzi scheme, MIS manager fraud, conflicted / cross owned assets purchased ?