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Derayah Financial Company -- Moody's assigns MQ2 investment manager assessment to Derayah Financial Company

·11 mins read

Announcement: Moody's assigns MQ2 investment manager assessment to Derayah Financial Company

Global Credit Research - 24 Aug 2020

Paris, August 24, 2020 -- Moody's Investors Service (Moody's) has assigned a MQ2 Investment Manager Quality assessment to Derayah Financial Company (Derayah). The MQ2 assessment reflects Moody's view of the asset manager as having very good management characteristics.

ASSESSMENT RATIONALE

Derayah is a Saudi-based asset manager with SAR4.7 billion in assets under management (AUM) as of June 2020 and focusses on asset management, brokerage services and alternative investment. Derayah has been in operation since 2008 and is a stand-alone asset manager.

The MQ2 is based on the company's disciplined investment process, good risk management practices, the good level of expertise and qualifications of its professionals. The assessment was also aided by the adequate and consistent investment results of its key funds over a credible time horizon, and the new digitization initiative that will provide the company an edge over its competitors. Moody's views the main challenges for the company to be its low geographic diversification, its relative lack of breadth of product offering as well as its concentration in real estate investment products. In addition, the company is exposed to regional geopolitical tensions, economic and business environment sensitive to oil price shocks. Moreover, Moody's believes that Derayah could benefit from diversification into more institutional clients.

Derayah's investment decision process follows a structured and well-defined analytical approach which includes quantitative and qualitative filters to select investments, coupled with a good analysis based on valuation models and supported by internal research. The approach is based on both bottom-up and a top-down approach. The investment and asset allocation decisions are discussed and made by a committee on a consensus basis reducing the key man risk.

The firm has good risk management and control practices and procedures, that are incorporated in the investment process. Proper implementation is supported by manuals, policies and systems. The risk management has independent lines of reporting to the management and the board of directors. Risk management decisions are documented and recorded.

Derayah's funds continue to meet their risk-return objectives. Derayah's Investment Skill and Risk scores are adequate and funds have shown good risk-adjusted performance relative to local benchmarks and peers, however, most funds have a short operating history. The firm's funds are positioned in the first quintile for real estate funds and fixed income funds where the bulk of its assets lie.

Derayah has invested significantly on its digitalization initiative over the years. Given the relatively young population in Saudi Arabia we expect this to be a tailwind for the company's AUM growth in the retail market. Although volatile prior to 2017, Derayah has been improving its client retention in recent years, with low rates of client turnover despite volatile and challenging market conditions.

Derayah's MQ2 assessment would face a downward pressure if: a) the company's funds risk-adjusted investment performance deteriorates relative to both peers and benchmarks; b) the company experiences a substantial decrease in assets under management; c) there are significant deviations from the company's investment processes and procedures that increase operational risk; d) key employees leave the firm and e) the GCC region experiences more geopolitical tensions and deeper economic shocks.

The framework used in this assessment was Investment Manager Quality Assessments of Asset Managers published in December 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1177533. Alternatively, please see the Framework list at https://www.moodys.com/research/List-of-NCRA-Frameworks--PBC_1178235 for a copy of this framework.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Vanessa Robert VP - Senior Credit Officer Financial Institutions Group Moody's France SAS 96 Boulevard Haussmann Paris 75008 France JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Marc R. Pinto, CFA MD - Financial Institutions Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's France SAS 96 Boulevard Haussmann Paris 75008 France JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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