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Sciens Funds of Funds Management rating was converted to High Standards, Stable Outlook from M2on 22 April 2013. The rating was affirmed on 24 June 2013.
Outlook
Stable
Profile
Asset under management (end 2012) Operating EBITA 2012 Date of creation Domiciliation USD5.2bn Undisclosed 1988 Cayman Islands (Sciens) UK (SCL) John Rigas (71.5%), other Sciens affiliates (28.5%) 100 (around 40 for Sciens FoF Management Ltd) 7 (for FoHF)
Ownership
Total staff
Investment professionals
Category Scores
Good Standards Company Controls Investments Operations Technology
Source: Fitch
High Standards
Highest Standards
Profile
Analysts
Manuel Arrive, CFA +33 1 44 29 91 77 manuel.arrive@fitchratings.com Alastair Sewell +44 20 3530 1147 alastair.sewell@fitchratings.com
Alternative Asset Manager: Sciens Capital Management LLC (SCM) and its predecessor firms were founded in 1988 and began alternative asset management activities in 1994. Sciens is owned by John Rigas (71.5%). As of 30 June 2013, the group managed and advised on about USD5.6bn of assets. Assets under management (AUM) of FoHF and managed accounts were USD3.4bn (both in direct investments and advisory). Around forty of SCMs 100 -plus employees are dedicated to the FoHF and managed account platform (MAP).
www.fitchratings.com
22 August 2013
By Investor Location
(% of total FoHF AUM (including Advisory) As at December 2012)
Americas 0.2% Other 11.5%
Europe 59.8%
Source: Sciens
By Strategy (FoHF)
(As at December 2012)
Thematic FofHF 10%
Multo-Strategy 90%
Source: Sciens
Company Structure
Sciens Fund of Fund Management Holdings Group at 31 March 2013
Sciens FOF Offshore Holdings Ltd. Cayman 28.5% Sciens Fund of Funds Management Holdings Ltd. Cayman John Rigas
71.5%
Rating Scope
Related Criteria
Asset Manager Rating Criteria (April 2013)
High Standards
High Standards
Funds are domiciled in the Cayman Islands or Guernsey. Some funds are listed on the Channel Islands and Irish stock exchanges. The majority of Sigma FoHF has two independent board members. Board meetings are generally held every six months at a minimum. The MAP consists of Guernsey-based protected cell company structures. MAP assets are held by the various custodian and sub-custodians. The MAP is separated from trading advisors for all governance and controls issues.
Staffing
Sciens has a good organisational structure, with an adequate separation of businesses and functions, often through separate companies. Clear organisational structure, staff turnover Sciens has experienced staffing turnover and attrition since 2011, which has led to the current low levels of staff relative to business size. In Fitchs view, this tends to increase key person dependency and individual workload, particularly for MAP personnel, legal and FoHF portfolio management. Stavros Siokos, who joined in 2011 is based in London and heads the FoHF and MAP business. He provides leadership for the whole platform, thereby reducing the historic reliance on John Rigas, who retains an overall responsibility for the firm and its management. Notable new hires are Alex Allen, who joined in 2011 as senior portfolio manager (PM), and in 2012, Tim Wilkinson who is responsible for global business development and distribution. In 2012-13, the head of MAP and the head of MAP operations left. The head of MAP operations was replaced by a former holder of that position who rejoined the company and Stavros Siokos has taken over as head of MAP. Sciens is in the process of adding junior to medium level staff to support the senior staff in place. Sciens employees have a market competitive base salary and a discretionary bonus, which is not directly linked to fund performance for PMs. A bonus is paid in three tranches per year. Employees may invest in the FoHF products, subject to the approval of the CEO and compliance officers. A longterm incentive plan for senior managers has recently been implemented. Funds typically have a 10% Performance fee, no hurdle rate with high water mark.
Structure Diagram
John Rigas Chairman Group CEO Christopher Meyering General Counsel Dr. Stavros Siokos, Ph.D CEO Tim Wilkinson President
Share their roles with other teams in the chart Including 4 external third party marketers Source: Transaction documents
High Standards
Controls (continued)
High Standards
FoHF administration is conducted independently by a number of administrators and custodians. The main administrators Kleinwort Benson Fund Services (since 1994). The main custodians have been ABN AMRO Guernsey since 2002 and UBP, Geneva since 2010. Service level agreements are in place with FoHF service providers and the performance of these is monitored by Sigma through key indicators and annual on-site reviews. SEI Investments Global Funds Services Limited and SS&C Technologies Inc provide subadministrators services to SGFS (NAV determinations, trade reconciliations and reporting). All newly launched cells are now sub-administered by SEI. In July 2013, Sciens replaced HSBC Securities Services (Guernsey) Limited with ABN AMRO (Guernsey) Limited for the custody, transfer agency and registrar functions for the MAP, following HSBCs decision to discontinue these services in Guernsey. Sciens follows a rigorous on-boarding procedure to select trading advisors for the MAP and the relationship is formalised in an Service Level Agreement. Prime brokerage terms are agreed on cell by cell basis. MAP service providers produce a monthly report to SGFS, which has been tailored by SGFS. The reporting is then discussed during a bi-monthly oversight call with the service provider.
Control Framework
Sigma and SGFS - at least quarterly. SCL - as required SCL Board consists of J Rigas, C Meyering, S Siokos Sigma Board consists of J Rigas, C Meyering, J Sebire, M de Haaff and R Adair (last two independent) SGFS Board consists of S Siokos, S Bougourd and C Marley Oversight of reputation and business risks, assessment of control environment
Board Meeting
Meets as required Consists of A Allen, S Siokos, Risk Managers\ Review of investment risks at fund and manager level
Monthly Consists of relevant Sigma, SCL and SGRS staff Discusses all operational, legal and investment risk issues of Sigma's funds
Investment Committee
Weekly Consists of J Rigas, A Allen, S Siokos, F Mehregani and R Botero Review of portfolio investment and liquidity risk, approval of new funds (FoHF) and Trading Advisers (MAP)
Sigma funds - at least six monthly; MAP at least quarterly Sigma funds generally have two independent directors; MAP has two independent directors
High Standards
Highest Standards
Investment Resources
John Rigas is the chief investment officer and has 26 years experience in the finance industry. Alex Allen, with 15 years industry experience, is the head of research for Sciens FoHF. He is supported by two research analysts in London. A senior PM left and the former head of research retired in 2012. The small size of the investment team increases reliance on key persons such as John Rigas and Alex Allen, in Fitchs opinion. IC consists of the most senior investment professionals of the firm: J. Rigas, S. Siokos, A. Allen, F. Mehregani and R. Botero. Small investment team The head of research is responsible for the execution of asset allocations and manager selection, while overseeing the risk management of portfolios. He has sufficient leeway in portfolio construction but investment decisions are made on the basis of allocation and selection decisions reached by the IC. Research analysts are responsible for manager due diligence and making recommendations to the IC. As head of research, the PM is well involved in the research process, beyond his typical role of sourcing and managing relationships with managers. Operational due diligence is the responsibility of two people one in Sigma and one in New York with support from the legal/risk teams and from third-parties where specific expertise is required. Superior access to quality fund data and markets feeds the proprietary research process and allows advanced quantitative risk analysis and reporting in FoHF. The MAP set up enables access to position-level information, provided from prime brokers and custodians in T+1.
Investments (continued)
Investment Discipline
Highest Standards
Sciens implements a standard, iterative investment process, combining top-down tactical allocations with bottom-up manager selection, as described in the diagram below. The process emphasises the maximisation of manager selection alpha (through more concentrated portfolios by number of managers) and the maximisation of downside protection (through more diversified and uncorrelated sources of risks/returns). Decisions are taken at the weekly IC meetings. The responsibilities of the IC are to set guideline limits for strategic and tactical asset allocations, to provide final approval for manager-recommended lists and to continuously review portfolio risk exposures. Disciplined, flexible investment process Operational and legal due diligence, conducted both for the fund of funds and the MAP, covers all key risks and is documented in an appropriate manner. The process includes the review of a compulsory operational risk questionnaire, as well as a number of other requested documents and an on-site review. There are currently more than 100 funds approved for FoHF investments, including 34 funds from 31 managers approved on the MAP. The trading advisors used on the MAP are subject to a comprehensive due diligence review conducted by Scienss risk, legal, operations and business development teams, prior to the appointment to the platform. The selection is documented in an on-boarding procedure report.
Investment Process
Asset Allocation
Fundamental Hedge Fund Monitoring
Determine Strategic outlook Consider Managers for Final due Diligence or Approval Review Monthly Portfolio Allocation Analyze Monthly Risk Reports Review Recent Performance
Regular Manager Contact Formal Evaluation Watch List Procedure Annual operational Due Diligence
Portfolio Construction
Due Dilligen Preliminary Approval Separate Operational Due Dilligence Monitoring Initial review
Identification of Unexpected or Undesirations or Sensitivity to Risk Factors Stress Testing Marginal VAR of Each Manager Quantitative Risk Oversight Liquidity Monitoring
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High Standards
Operational Procedures
Most FoHF operations are delegated to Sigma, including cash management, relationship management with underlying fund registrars, reconciliations and currency hedging. In this regard, Sigma appears well equipped, with four full time staff with access to SIMS and a cash management system, IT2. Small operations teams Three operations staff are in charge of MAP operations (relationship with trading advisors and subadministrators, payment execution, distribution of documentation.) and three are in charge of legal (fund structuring, negotiation of legal documentation). A good level of STP between SCL and Sigma supports the fund administration workflows. SCL automatically submits recommendations to Sigma, which instructs administrators and/or custodians. Once due-diligence status, cash and overall consistency have been checked, an instruction is forwarded by Sigma using SIMS to the fund administrator and/or custodian as appropriate. All residual cash positions are either placed on deposit with the custodian or in money market funds by Sigma, which monitors and forecasts cash levels for up to three months, via the IT2 application. Currency management is the responsibility of Sigma, which prepares instructions on each valuation date. All active funds are systematically hedged against their base currency. The MAP operating model is described in the diagram below. SGFS is the official manager and administrator for each cell, but most administration activities are outsourced to third parties through agreements. Trading advisors are responsible for trade confirmation. Sub-administrators are responsible for trade reconciliation and NAV calculation. The operations team and sub-administrators instruct cash movements using restricted templates and dual sign-off.
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Cell/Account
Market Counterparties
Reports on Positions
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High Standards
IT Resources
In-house small IT team Scienss in-house team consists of two IT professionals in charge of system maintenance and development. Data management and data integrity is the responsibility of the risk team.
Systems
SIMS is a proprietary integrated web-based application, customised to Scienss needs in the areas of research, portfolio management and front office operational management. Risk analytics and portfolio management tools are all centralised in SIMS. State of the art, proprietary IT platform As an enterprise-wide solution, SIMS supports MAP risk analysis functionalities, workflow management, underlying fund monitoring, portfolio management, reporting and risk control. Sciens uses RiskMetrics as an enterprise-wide risk analytics. Salesforce is the main CRM system. SMART is an interactive look-through engine allowing investors to perform in-depth analysis of all cells on MAP, portfolio of client holdings in individual cells within MAP and portfolio simulation. Data is centralised on a SQL database, which is fed by market data (automatically for Bloomberg, HFR, Morningstar), hedge fund prices (semi-automatically), portfolio valuations and cash flows (through STP). Superior data centralisation and system interface It consolidates the groups portfolio positions, NAVs and other information (due-diligence questionnaires, call reports and e-mail copies, for example) on hedge funds. Data collection, analysis and reporting are therefore facilitated by the central database. RiskMetrics, which is complemented by various add-ons, is also linked with SIMS. Sciens benefits from a full integration, due to a centralised infrastructure and an enterprise-wide, frontto-back office system.
IT Security
Effective disaster recovery plan Sciens has comprehensive, tested disaster recovery and business continuity plans, with daily back-up procedures and alternative emergency sites.
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The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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