Asset Management Overview

Industry Report: Asset Management
Protecting Client Assets from ESG Risks

Asset managers will face downward pressure on security values with increased costs of mitigating climate change effects and complying with related regulations. Universal investors are increasingly asking asset managers to consider ESG risks in investment processes. Yet, even the strongest performers in our analysis do not yet offer total integration of ESG across all products. Using our proprietary ESG country and asset class risk model, we identified high risk investable assets to assess how each asset manager's clients' funds are exposed to ESG risk. We evaluated managers strategies in integrating and hedging against ESG risks in their products. While the top performers were largely European, key managers to watch include 3i Group (A), Perpetual Ltd. (AAA), and Ashmore Group (A). Both Ashmore and 3i Group use high ESG risk investment strategies, but both have disclosed strong efforts to fully integrate ESG into the buy/sell/hold decision. Perpetual stands out as the lone manager to have fully integrated ESG risk analysis in a majority of its portfolios.
Bank of New York Mellon Franklin Resources, Inc. BlackRock Inc. State Street Corp. T. Rowe Price Group
June 2011
RATINGS HIGHLIGHTS (TOP 5 MARKET CAP)
BB BBB A BB BBB
Down Maintain Up Down Maintain
RELATED REPORTS
Industry Report: Investment Banks & Brokerage Industry Report: Global Banks
K EY TAKEAWAYS
Company ratings are heavily weighted by risks and performance on the following three key issues: ESG risk factors are fundamental, and security valuations will inevitably reflect them. As countries adopt more stringent corporate regulations to address climate change, asset managers on the wrong side of the fence may not only lose competitive advantage but risk downward pressure on security values across all markets and asset classes. Our analysis found F&C Asset Management (AAA), BlackRock (A), and Jupiter Fund Management (AAA) having made the strongest strides towards ESG integration in risk analysis to positively position themselves in the peer group. Programs to retain human capital limit training costs and foster stability. The pressure to retain human capital through financial events such as mergers, acquisitions, or following redundancies, necessitates engaging top talent. Julius Baer (BB) and Ashmore Group (A) have outperformed the competitive group with strong training and benefits incentives, as well as commitments to engaging employees in an effort to anticipate future issues. Client trust is asset managers primary currency, and security of this trust is mandatory. More than 83 million client records have been lost by the financial sector since 2001, and the industry is the second most targeted by data thieves according to the Data Loss Database. In the competitive set, Schroders (AAA) and Henderson Group (AA) lead in terms of key best practices in data protection.
2010 MSCI, Inc. All rights reserved. Please refer to the disclaimer at the end of this document.
CONTACTS
Matt Moscardi
matt.moscardi@msci.com
Page 1 of 20
June 2011
Analytical Set
Ticker III-LN ADN-LN AMP-N ASHM-LN BK-N BLK-N CIX-T EV-N FCAM-LN BEN-N GAM-EB HL.-LN HGG-LN IGM-T ICP-LN IVZ-N IFL-AU BAER-VX JUP-LN LM-N EMG-LN NTRS-O PPT-AU PTM-AU RATO'B-SK 8473-TO SDR-LN SEIC-O STT-N SVI-LN TROW-O Company 3i Group PLC Aberdeen Asset Management PLC Ameriprise Financial, Inc. Ashmore Group PLC Bank of New York Mellon Corp. BlackRock, Inc. CI Financial Corp. Eaton Vance Corporation F&C Asset Management plc Franklin Resources, Inc. GAM Holding AG Hargreaves Lansdown PLC Henderson Group PLC IGM Financial Inc Intermediate Capital Group PLC Invesco Ltd IOOF Holdings Ltd. Julius Baer Group AG Jupiter Fund Management PLC Legg Mason, Inc. Man Group PLC Northern Trust Corporation Perpetual Ltd Platinum Asset Management Ltd. Ratos AB SBI Holdings Inc Schroders PLC SEI Investments Company State Street Corporation SVG Capital PLC T. Rowe Price Group, Inc. Country UK UK US UK US US Canada US UK US Switzerland UK UK Canada UK US Australia Switzerland UK US UK US Australia Australia Sweden Japan UK US US UK US Rating 2009 BBB BBB BBB BBB BBB BBB A BBB BBB BBB A BBB BBB A BBB BBB B BBB BBB BBB B BBB A B BBB BBB BBB BBB BBB 2010 A A B A BB A B B AAA BBB B B AA BB B BBB A BB AAA A BB AA AAA B B B AAA B BB B BBB Upgrade Maintain Maintain Upgrade Downgrade Upgrade Upgrade Downgrade Upgrade Maintain Downgrade New Upgrade Downgrade Downgrade Upgrade Maintain Downgrade New Upgrade Downgrade Upgrade Upgrade Downgrade New Downgrade Upgrade Maintain Downgrade Downgrade Maintain
Calls for the Period

While the larger, more mainstream socially responsible investment (SRI) focused managers performed well in the peer set, the race for true integration of ESG into investment due diligence is still at the starting line. However, 3i Group (A) and Ashmore Group (A) stand out as key companies to watch. Both are exposed to high levels of ESG risk given their market foci in European private equity and emerging market public equity, respectively, but both have made some best-in-class strides to incorporate ESG into investment decisions. Over time, we expect these companies to outperform even the progressive SRI firms whose focus tends to be on screened or mandated investments and ESG in corporate governance. US based asset managers have largely ignored ESG risks to their portfolios, and in some cases, actively disdain it. If not for the strong performance of BlackRock (A), the overall US asset manager performance rates near the bottom, well below stronger UK and Australian counterparts. Our expectation that the US government will no longer be able to ignore environmental costs puts increased pressure on US asset managers who lack expertise or foresight to consider ESG risks in client assets.
AVERAGE RATING BY COUNTRY IN THIS ANALYTICAL SET:

Country UK Australia US Canada Switzerland Japan Sweden Number of Companies 11 3 11 2 2 1 1 Asset-Weighted Rating AA A BBB BB BB B B
2010 MSCI, Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.
Page 2 of 20
June 2011
Companies Performance on the Key Issues

Description: The three key issues below constitute a combined 100% of the total weight in determining this years company ratings.
Company
Responsible Investing 50%
Human Capital Development 30%
Privacy and Data Security 20%
IVA Rating & Movement AAA AAA AAA AAA AA AA A A A A A A BBB BBB BBB BB
F&C Asset Management plc Jupiter Fund Management PLC Perpetual Ltd Schroders PLC Henderson Group PLC Northern Trust Corporation 3i Group PLC Aberdeen Asset Management PLC Ashmore Group PLC BlackRock, Inc. IOOF Holdings Ltd. Legg Mason, Inc. Franklin Resources, Inc. Invesco Ltd T. Rowe Price Group, Inc. Bank of New York Mellon Corporation Legend:
Bottom Quartile Top Quartile

new
Strong Downgrade Downgrade
Strong Upgrade Upgrade
new
Maintain Newly Initiated
Page 3 of 20
June 2011
Companies Performance on Key Issues (continued)

Company
Responsible Investing 50% IGM Financial Inc Julius Baer Group AG Man Group PLC State Street Corporation CI Financial Corp. Eaton Vance Corporation GAM Holding AG Hargreaves Lansdown PLC Intermediate Capital Group PLC Ratos AB SBI Holdings Inc SEI Investments Company Ameriprise Financial, Inc. Platinum Asset Management Ltd. SVG Capital PLC Legend:
Bottom Quartile Top Quartile

Human Capital Development 30%
Privacy and Data Security 20%
IVA Rating & Movement BB BB BB BB B B B B B B B B B B B
new new
Strong Downgrade Downgrade
Strong Upgrade Upgrade
new
Maintain Newly Initiated
Page 4 of 20
June 2011
Key ESG Issues

In evaluating the ESG performance of the companies in the Asset Management industry, we focused on the following three key issues: Responsible Investing (p. 5) ESG investment risk by market and asset class Integration of ESG risks Human Capital Management (p. 12) Mergers, acquisitions, and redundancies Leadership training and employee engagement Non-salary benefits programs
FIGURE 1
ESG Event Impact on Share Price
Privacy and Data Security (p. 15) Regulatory strength and anticipated change Data breaches and controversy Privacy policy best practices In our analysis, asset managers are differentiated by their efforts to integrate ESG risk into due diligence, either through active corporate engagement or though buy/sell/hold decisions. 1) Risk Exposure of each company is evaluated based on the following criteria: Country and Asset Class Risk (see below) ESG Integration o o o Percentage of assets for which ESG risks are analyzed ESG risk staffing and training; most senior responsible agents Product offerings or portfolio holdings that take advantage of ESG market opportunities Proxy voting policy inclusion of ESG or portfolio corporate engagement strategies to mitigate ESG risks Track record of investment-related controversy
Page 5 of 20
Responsible Investing
This key issue is the most important to the industry and accounts for half of the rating weight. Asset managers are exposed to the ESG risks of each industry and country in which they invest, increasing the potential total loss from ESG-related events or regulatory action. As we expect continued strengthening of global environmental regulation of emissions and consumption, security valuations will inevitably reflect the cost of industry compliance. Concurrently, the increase in environmental black swan event risk, such as severe weather or environmental disasters, can pose sudden and immediate downward pressure on capital markets. Although based on a small sample, the following chart indicates a possible strengthening of market reactions to ESG events. While Exxon Mobile (XOM) and Statoil experienced little noticeable price attrition following the Exxon Valdez oil spill and Statjord oil field spill, more recent events at Massey Energy (MEE), British Petroleum (BP), and Tokyo Electric Power Company (TEPCO) all continued downward price movement more than two months after the event.
2) Risk Management is assessed through the following metrics:
ESG Opportunities
Engagement Strategies o
ESG Investment Controversy o
June 2011
ESG RISKS IN INVESTMENT PORTFOLIOS

We took a detailed look at how each manager in the peer group had allocated its client assets and what steps it had taken to ensure management of ESG risks throughout the portfolios, regardless of investment strategy. Though disclosure of overall client asset allocations is often incomplete, we have developed an ESG risk assessment model measuring risk from two sources: country specific risks and asset class specific risks.
FIGURE 2
Country Risk Exposure Analysis of Portfolio Assets

Environmental Regulation
Carbon and Equivalents o Business as Usual o Targets, Mandates o Projected CO2e Growth
Our country specific analysis is broken into four broad categories of risk: Financial Sustainability, Environmental Regulation, Geographic Constraints, and Governance and Political risks. The strongest performing (or lowest risk) country would have a low debt profile, strong environmental policies, adequate natural resources that include potable water and arable land relative to consumption, and a strong functioning government with limited corruption. For each category, we evaluated a number of sub-factors, shown below, to develop an overall country score. Final country scores represent a countrys inherent risks and ability to manage both sudden, black swan environmental disaster as well as the slower effects of climate change. Figure 3 on the following page shows the ESG risk profiles of some key regions, each of which weights individual country scores by total market capitalization. The notable relatively low-risk anomaly appears to be the strong performance of Latin American countries, though this is largely hinged on Brazils strong score and large market capitalization. Emerging Markets, in particular Frontier Markets, were expectedly among the highest risk investable regions, a result of limited environmental regulatory efforts, political instability, and generally high debt burdens. Allocations to US markets account for a majority of the peer group assets, with over 45% of total assets under management in the US alone. Given that the US is under significant international pressure to adopt more stringent environmental regulation, especially in light of its high per capita energy and natural resource consumption rates, managers heavily invested in US markets may be exposed to security price valuation pressure over the long-term. Our asset class specific risk analysis highlights how ESG risk is exacerbated by the market dynamics of each asset class. We have implied levels of ESG risk based on specific asset class factors such as liquidity, price volatility, and transactional costs, as well as market specific criteria such as market volumes, as indicated in Figure 4 below.
Financial Sustainability
Debt o External Debt as % of GDP o NPV of Debt as % of GNI o Interest Payments o Cash Surplus o Risk Premium Trade o Agricultural Exports as % GDP o Extractive and Heavy Industry Exports as % GDP
Geographic Constraints
Weather o Wind o Humidity/Aridness o Temperature Disasters o Sea Surface Temperature o Tsunami, Landslides Coastline o Low Elevation Population o Direct Coastal Population Risk o Coastal Assets Landmass o Size o Protected Land o Population Density Biocapacity o Sustainable Resource Consumption
Governance and Political Risk

Stability o Voice and Accountability o Absence of Terrorism Regulation o Government Effectiveness o Rule of Law o Regulatory Quality Corruption Levels
Page 6 of 20

FIGURE 3
June 2011
FIGURE 4
ESG Risk by Regional Market

Financial Sustainability
ESG Risk Exposure Analysis of Asset Class Mix

ESG Risk Characteristics
Low liquidity, infrequent or opaque pricing, direct ownership and longterm holding lead to higher potential exposure to ESG risks. Limited transparency means unknown and potentially high ESG risks; exposure to some asset classes with higher social risks (e.g. MBS); governance of individual managers is paramount. Low liquidity and high operational requirements of direct real estate leads to higher exposure to regulation, energy costs and changing demand; physical exposure to impacts of climate change higher than other asset classes. Longer duration, limited off-the-run liquidity, and opaquely priced markets mean potentially longer ESG exposures. Longer duration and lower liquidity mean corporate bonds are as exposed or more exposed to ESG risks than public equity. High liquidity means greater ability to sell out of positions, though ESG factors can affect both upside and downside risk. Note: we applied a country overlay to account for differing characteristics of public equity markets. Lowest risk; indirect exposure only.
All Country World
Asset Class
Highest risk
Private Equity Alternatives
Governance and Political Risk
Environmental Regulation
Real Estate
Fixed Income (Non-Corporate)
Geographic Constraints Emerging Market

F
Fixed Income (Corporate)

F
EAFE
Public Equity
Lowest risk
Gov E Gov E
Cash and Money Market
Geo
Geo
Latin America
United States
Gov
Gov
By using both country specific scores and asset class specific scores, we assessed each asset managers potential risk exposure in its client assets under management. We ignored custodial or administrative assets in our scoring given managers lack of agency over decision making. The results of our analysis were largely unsurprising, as private equity and emerging market focused investment strategists were exposed to more ESG risk in their assets than more traditional, developed market focused managers. Our risk analysis results are shown in Figure 5 on the following page. Overall manager performance was predicated on asset managers policies and due diligence process for ESG risks relative to their respective risk exposures. Management of ESG Risk in Client or Portfolio Assets
Geo
Geo
Overall Risk Score Legend High Risk Med Risk Low Risk
By and large, the asset management industry largely ignores ESG risk in portfolio decision making. This is especially true in the United States, where there is little political will for climate or environmental based legislation.
Page 7 of 20

FIGURE 5
June 2011
Percentage of AUM by ESG Risk Level
Description: The following chart highlights the overall risk exposure of client or proprietary assets under management for each asset manager in the peer group by a Low / Medium / High ranking.
Low
Med
High
100% 90%
28% 19% 19% 13% 11% 16% 14% 9% 7%
5%
5%
4%
3%
2% 20% 17%
25% 25%
80%
51%
42% 34% 30% 40% 44% 53% 64% 70% 89% 100% 59% 19% 70% 72% 75% 80% 83% 75% 43% 45% 52% 52% 51% 50% 50%
70% 60%
87%
50%
100% 100% 100% 100% 97%
40% 30%
20%
58% 51% 42% 30% 30% 13% 48%
55% 48%
52% 45% 46%
49% 50% 50%
27%
10%
13% 9%
26% 10%
25%
0%
Ratos SVG 3i Group Man Group
3%
Legg Mason
BlackRock
IOOF
Eaton Vance
Ashmore
GAM
Schroders
IGM
BNY
SBI
SEI
Hargreaves
Northern Trust
Julius Baer
Platinum
Invesco
Franklin
F&C
State Street
CI Financial
KEY: Low = lowest 25% of risk scores based on country/asset class; Med = middle 50% of risk scores based on country/asset class; High = highest 25% of risk scores based on country/asset class.
T. Rowe Price
Intermediate
Henderson
Ameriprise
Aberdeen
Perpetual
Page 8 of 20
Jupiter
June 2011
FIGURE 6
Arguably, the most influential body on asset managers in terms of increasing focus on ESG risks has been the United Nations Principles for Responsible Investing (UN PRI). We noted that 54% of the total client assets in our competitive set included some form of ESG integration, whether governance only or full integration. Of those companies with an integrated approach for ESG risks, 82% are UNPRI signatories. However, there was a great degree of variation in terms of disclosed systems for integration, even among UNPRI signatories. Nearly half of managers (40%) who had some form of integration focused exclusively on corporate governance work or direct company engagement. This trend was prevalent among managers with large public equity or passive indexing strategies, whereas real estate and private equity focused more often on total integration into the investment process. Only Perpetual Ltd. (AAA) disclosed a comprehensive integrated approach in a majority of its client assets. Figure 6 details what we determined to be best practices for both passive and active ESG strategies. Figure 7 highlights asset managers with disclosed ESG strategies, comparing the percentage of assets where ESG is reportedly considered a risk factor vs. the strength of ESG integration relative to best practices. In terms of product offerings designed to capture ESG opportunities, such as cleantech, microfinance, or sustainable materials and living, surprisingly few managers took advantage of the growing capital allocations to the space. Based on Fenwick venture capital surveys and data from the Cleantech Group, nearly 30% of venture capital investments in 2010 were in clean technology. Of the active investment managers, ESG product offerings are sparse, with leaders being Jupiter Fund Management (AAA), Ashmore Group (A), SBI Holdings (B), and F&C Asset Management (AAA). 11% of Jupiters assets are allocated specifically to ESG related opportunities, the highest of the group. Though SBI has no disclosed efforts to integrate ESG into the overall investment process, it operates an Asian market focused cleantech venture capital fund, and was among the first syndicators of World Bank Green Bonds. F&C offers a Global Climate Opportunity Fund and Emerging Market ESG Opportunity Fund at the institutional level, and Ashmore has made several renewable energy debt investments.
Best Practices in ESG Integration

Active Management Passive Management
ESG risks analyzed as part of corporate governance due diligence and engagement; Environmental and social proxy voting policy includes guidelines for YES / NO / ABSTAIN voting; Binding ESG policy adopted; Senior or executive staff responsible for ESG performance; ESG risk included in corporate governance for high-risk sectors or specific funds only; Company engagement limited to high-risk industries or high-profile ESG events; Dedicated ESG staff or ESG trained corporate governance analysts; ESG risks considered on a case-by-case basis in corporate governance, with primary policy being a vote with management; ESG given limited or no exposure in direct corporate engagement; No ESG dedicated staff or senior responsibility; No disclosure or evidence of ESG risks considered in corporate governance processes or policies;
Best Practice
ESG risks analyzed as factor in buy / sell / hold decisions; Analysts trained to include ESG risks in recommendations; Senior or executive staff responsible for ESG performance in assets; Binding ESG policy adopted; ESG risks analyzed for certain high-risk sectors or in specific ESG focused funds only; ESG analyzed in corporate governance and company engagement, but not in buy / sell / hold decision; Analysts trained on ESG risk analysis; ESG risks analyzed only where relevant within high-risk sectors or analyzed purely as a policy issue; No ESG dedicated or trained staff, no senior level responsibility for ESG performance in assets; No disclosure or evidence of ESG risks considered in investment due diligence processes;
Weak Practice
Overall, the key issue leaders emerged in a clear pattern: European asset managers with low-to-moderate risk exposure and a commitment to ESG mostly through corporate governance. The exceptions are Ashmore Group PLC (A) and 3i Group PLC (A), both of whom have disclosed strengthening efforts to incorporate ESG into investment processes. Ratos AB (B) similarly has begun the ESG integration process, though is further behind and we are cautious about its prospects overall. We have similar reservations about SBI Holdings Inc. (B). Intermediate Capital Group (B) and SVG Capital (B) are both notable in their lack of ESG efforts given high risk exposures, and we feel ESG integration efforts may not be forthcoming in the near-term. Eaton Vance Corporation (B) and CI Financial Corp. (B) disclose no ESG integrations efforts, though both face relatively low risk exposures.
Page 9 of 20
June 2011
FIGURE 7
ESG Integration by Percentage of Client Assets
Description: The following chart highlights only managers who have disclosed an ESG risk management strategy. The x-axis indicates the percentage of assets subject to some disclosed ESG analysis, and the y-axis indicates the extent of ESG integration based on our scoring of companies disclosed strategies.
10
Active Assets: Integrated buy/sell/hold ESG risk analysis

9
Perpetual
Passive Assets: ESG corporate governance strategy or active company engagement
Strength of ESG Integration - Score
Aberdeen
Legg Mason Northern Trust Henderson Schroders 3i Group
Active Assets: Partial ESG risk analysis, fund specific ESG risk analysis, ESG governance only, or high-risk sector ESG analysis only Passive Assets: ESG corporate governance for specific funds or high-risk sector engagement only
Ashmore Group
BlackRock
IOOF Holdings
F&C Bank of New York State Street Jupiter
Active Assets: ESG risks analyzed in high-risk sectors or 'where relevant' Passive Assets: ESG governance on a strict case-by-case basis, but not usually considered
Franklin
2
GAM
T. Rowe Price
SVG Capital
1
Percentage of Assets Subject to Some Form of ESG Risk Analysis

0% 25% 50% 75% 100%
Page 10 of 20

FIGURE 8
June 2011
Performance on Responsible Investing Issue
Description: The x-axis indicates the managers potential exposure to ESG risks in client or portfolio assets, while the y-axis indicates our scoring of management quality, based on ESG integration best practices. Risk exposure scores along the x-axis have been truncated at 5 to show differentiation (no companies scored below a 5 on risk exposure).
10
Strong ESG Integration

Complete or near complete integration of ESG risks in due diligence or corporate governance
ESG Integration in Investment Due Diligence or Governance
Risk Management
F&C Jupiter
BlackRock
Schroders
Aberdeen
Henderson
3i Group Ashmore Group
Perpetual
IOOF Legg Mason T. Rowe Price

Northern Trust
Ratos AB
Moderate ESG Integration

Partial integration of 5 ESG risk analysis or primarily ESG corporate governance integration
Invesco
BNY Mellon
Franklin
State Street IGM
SBI Holdings
SEI
Hargreaves Ameriprise Platinum Julius Baer Man Group Eaton Vance Corporation CI Financial
GAM Holding
Intermediate Capital Group
SVG Capital
Poor ESG Integration

Little to no integration of ESG risk analysis in investment processes
Risk Exposure AUM by Asset Class ESG Risk or Country ESG Risk
0 5.00
Low Risk
Minimal asset class or country risk in client asset allocations
7.50
Moderate Risks
Some allocations to higher ESG risk asset classes or markets
High Risk
Highly illiquid or high ESG risk allocation strategies in client portfolios
10.00
Top Quartile
Second Quartile
Third Quartile
Bottom Quartile
Page 11 of 20
June 2011
Human Capital Development

Downsizing, mergers, acquisitions, and bankruptcies in the last three years since the financial crisis have steadily increased the need of companies to groom new leaders and foster talent or risk losing employees to rivals. This is especially true for asset managers, where portfolio manager tenure and staff turnover are seen by clients as benchmarks for stability. We have analyzed the extent to which asset managers implement programs and controls designed to retain key personnel given the market pressures for talented staff. The Human Cost of Going to Scale According to research done by Leonard Kostovetsky and Jerold Warner of Simon School, University of Rochester, who evaluated more than 10,000 mutual fund portfolio managers, 71% have attained advanced degrees (masters or PhD), and there was no evidence that replacing managers after periods of lagging returns has a statistically significant impact on future returns. Their research implies two things: (1) The asset management industry is dependent on highly educated, highly trained staff, and (2) Replacing rather than retaining existing managers represents a cost without benefit, as fund performance does not statistically improve. Our research focuses on risk exposure and risk management in retaining human capital assets: 1) Risk Exposure of each company is evaluated based on the following criteria: Employee Specialization and Education; Mergers, Acquisition, and Layoff Risks; Non Salary Compensation and Benefits Employee Satisfaction and Representation Professional Development Labor and Discrimination Controversies financial decisions on employee morale and efficiency. Figure 9 shows M&A activity of the competitive set as a ratio of acquirer 2008 total assets to acquisition costs from 2008 to 2011. M&A activity is documented to increase internal competitiveness at the cost of collaboration, increase employee stress, and correlate with a rise in absenteeism. Few firms conduct cultural assessments as part of M&A due diligence, and labor inefficiencies increase as staff copes with the fusion of often disparate corporate cultures or role redundancies.
FIGURE 9
Ratio of the Sum of Acquisitions since 2008 to Total Assets in 2008

Value as % of 2008 Total Assets
0% 20% 40% 60% 80%
BlackRock, Inc. Aberdeen Asset Management PLC IOOF Holdings Ltd. Henderson Group PLC Man Group PLC Bank of New York Mellon Invesco Ltd CI Financial Corp. State Street Corporation 3i Group PLC Ameriprise Financial, Inc.
2) Risk Management is assessed through the following criteria:
The industry pressure on asset managers to grow in scale through mergers and acquisitions, or to reduce costs through downsizing, ignores the effects of these
Page 12 of 20
June 2011
This was clearly the case for both Henderson Group PLC (AA) and BlackRock Inc (A), both of whom completed large acquisitions relative to their asset base and employee numbers. In Hendersons case, its acquisitions of New Star Asset Management and Gartmore Group Limited represented a more than 25% increase in company assets and 50% increase in staff. Within two years, Henderson lost several key fund managers in the New Star acquisition, and it is not clear what effect the Gartmore merger will have. Similarly, BlackRocks acquisition of Barclays Global Investors in 2009 swelled the companys staff by more than 50%, increasing its assets by more than USD 1.5 trillion, double its pre-merger assets. Following the merger, BlackRock hired consultant McKinsey & Co. to review its operational strategy, believing it had grown too large to manage the global operations using a centralized management team. Whether in response to management issues or as a result of new operational strategies, BlackRock has lost several key executives, each of whom cite the merger as a reason for voluntary turnover, and an unknown number of back office staff. While BlackRock disclosed virtually no employee engagement strategy, Henderson maintains strong employee loyalty through engagement and training.
Henderson is 13% owned by employees, and more than 80% of staff participate in the annual employee survey. Monthly Communications Forums offer employees the opportunity to provide direct feedback. In contrast, we are unclear about BlackRocks investments in its employees. The company offers strong stock plans, though many of the company benefits and management systems are disparate, the result of several mergers over the last three years. Our assessment concluded, in this case, that Hendersons strong corporate culture and employee loyalty made the acquisition of two distressed funds possible with minimal loss, while BlackRocks size and weaker employee loyalty made an acquisition of BGIs scale significantly more difficult. Figure 10 on the following page shows our overall results for the Human Capital Development key issue for this industry. Northern Trust Corporation (AA) is the largest of the top quartile performers in terms of employee numbers, largely a result of its lower risk profile given a more diversified set of employee needs. While smaller, both Julius Baer (BB) and Ashmore Group (A) outpaced the field, with strong commitments to employee engagement, excellent non salary benefits packages, and leading employee training and development programs.
Page 13 of 20

FIGURE 10
June 2011
Performance on Human Capital Development Key Issue
Description: The x-axis indicates companies potential risk of human capital loss or talent requirement, while the y-axis indicates our scoring of non-salary incentives, employee engagement strategies, and training programs. Bubble size denotes employee number as of December 31, 2010. The chart has been truncated at scores of 3 or higher to show differentiation.
Note: Bubble size = total employee
Strong non-salary incentives, employee engagement programs, or training options.
Risk Management Human Capital Development and Retention Programs
Strong Human Capital Management
Julius Baer
3i Group
F&C Ashmore
Franklin
Man Group
Henderson
Schroders Perpetual IOOF
Bank of New York Mellon
Intermediate Capital
Moderate Human Capital Management
State Street Corporation
Norther Trust
Moderate or less inclusive non-salary incentives, regulatory trainings, little or no employee engagement.
Aberdeen T. Rowe Price

SVG Jupiter
Invesco
GAM
SBI
Eaton Vance Hargreaves

Ameriprise
SEI
Legg Mason
IGM
BlackRock Inc.
Poor Human Capital Management
Non-inclusive non-salary incentives, mandatory regulatory trainings, no employee engagement strategy.

3
Ratos
CI Financial
Platinum
Risk Exposure
8
Low Risk
Less educational job requirements, no mergers, acquisitions, or layoffs since 2008.
Skilled or more highly educated employees required, some merger, acquisition, or layoff activity since 2008.
Moderate Risks
Highly educated, highly trained professionals required, major merger, acquisition, or layoff event since 2008.
High Risk
Top Quartile
Second Quartile
Third Quartile
Bottom Quartile
Page 14 of 20
June 2011
Privacy and Data Security

Since 2005, more than 80 million customer or client records have been stolen or lost by the financial industry. This is second only to the retail industry overall, but the financial industry has lost more records since 2008 than any other industry. In an industry that trades largely on trust, data breaches represent more than a potential legal or regulatory cost, they ultimately could cost the sector in the form of client attrition. Asset managers are at particular risk, given the types of sensitive data used to transact business on a daily basis. While many asset managers outsource their data services to third parties, this necessitates even more stringent policies and monitoring systems.
FIGURE 11
2) Risk Management is assessed through the following metrics: Privacy and Data Policy o o Adherence to industry standards; Adoption of stronger industry best-practices for data protection; Staff roles and responsibilities for data protection; Data audits and staff trainings;
Policy Enforcement o o
Data or Privacy Breaches
Customer or Client Records Reported Stolen Since 2005 (top 5 industries shown)
The Price of Lost Privacy While a majority of data losses in the financial industry are due to either thievery or data hacking, according to the Data Loss Database, 38% of data losses since 2005 have been the result of what we categorized as poor internal data controls. This includes improper computer or data drive disposal, lost drives as a result of employee error, or improper data transmission, either via mail or digitally, resulting in a privacy breach. This was certainly the case for The Bank of New York Mellon Corporation (BB) in 2010, where more than 12 million customer records were stolen from 10 backup tape drives which were unguarded in the back of a truck. While the data transportation subcontractor was subsequently terminated, Bank of New York was forced to allocated USD 49 million of preprofit capital for the industry standard one year of credit monitoring services. The cost to Bank of New York is still ongoing, as the company settled with the State of Connecticut for USD 150,000 in conjunction with the breach, and is still liable for reimbursing any funds stolen as a result of lost data. Similarly, Ameriprise Financial, Inc. (B) had several data breaches in 2008, losing an unknown amount of customer data contained on a stolen laptop, stolen backup drive, and lost documents. The firm settled with Massachusetts Secretary of State for USD 25,000 for investigative costs, and the damages to clients is still an unknown liability.
We evaluated asset managers risk of increasing regulation relative to their current data security and privacy policies using the following metrics: 1) Risk Exposure of each company is evaluated based on the following criteria: Sensitivity of Data Collected by Industry; Regulatory Strength and Expected Changes for Operational Footprint;
Page 15 of 20
June 2011
The glut of data losses across industries has more sharply focused regulators on protecting consumers through legislation. Over the next two years, Eurozone nations are expected to increase disclosure requirements and require greater consumer consent for data uses. In US, where legislators have largely been lax to enforce consumer privacy protections, both the Federal Trade Commission and the Department of Commerce are proposing similar legislation on top of existing Securities and Exchange Commission and FINRA regulations for data protection. In April of this year, the SEC announced the first ever fine using Regulation S-P, known as the Safeguard Rule, for a client privacy breach by a financial company, stating that customers should, be able to trust that sufficient safeguards are in place to protect their private information from unauthorized access and misuse. Our analysis concluded that asset managers, by and large, do not largely adopt anything but the industry minimum standard either as required by law. The
exceptions to this rule were both 3i Group PLC (A) and CI Financial Corp. (B). 3i Group, as a proprietary private equity firm, has less need to maintain client data. However, they have adopted a number of best practice policies, including procedures to allow clients to delete their data, deleting data entirely for closed accounts, and recognizing data security as an operational risk in its annual report. CI Financial, on the other hand, collects large amounts of client data as a mutual fund provider. The firm similarly adheres to many best practices, and additionally limits data access to only certain, trained personnel. The following chart highlights the privacy policy covenants for the asset management peer set, with top performers highlighted in blue and bottom performers in red. Note that Ratos AB does not collect client data at all, and as such, is not held to the same standard.
Page 16 of 20

FIGURE 12
June 2011
Privacy Policies What do Asset Managers Disclose?
Description: The following chart details what each manager discloses in their privacy policies, where available. Filled circles highlight areas where data is disclosed, blanks show no disclosure. Companies are grouped by management performance quartile, with top quartile at the top and bottom quartile at the bottom separated by lines.
Page 17 of 20
June 2011
Appendix: Scoring Methodology

The ESG Data Supplements available on iRatings provide more details on the metrics used to score IVA subfactors identified as non-Key Issues in the IVA rating methodology for this industry (shaded in grey below).
IVA Factor
Strategic Governance
IVA Subscore
SG1) Strategy SG2) Strategic Capability / Adaptability SG3) Traditional Governance Concerns
Weight
0% 0% 0% 30% 0%
Key Metrics
Overall governance; score composed of total scores of non-Key Issues Management of CSR issues, partnership in multi-stakeholder initiatives Board independence, management of CSR issues, board diversity, compensation practices, controversies involving executive compensation and governance practices KEY ISSUE: HUMAN CAPITAL DEVELOPMENT Human capital retention and development programs, M&A and layoff activity Policies, programs, benefits, employee-related controversies, union relations
For More Information

See Data Supplement (DS) Governance DS - Governance Structures DS - Governance Structures Industry Report; IVA Profile Industry Report; IVA Profile
Human Capital
HC1) Workplace Practices HC2) Labor Relations
HC3) Health & Safety Stakeholder Capital SC1) Stakeholder Partnerships SC2) Local Communities SC3) Supply Chain Products and Services PS1) Intellectual Capital/ Product Development PS2) Product Safety Emerging Markets EM1) EM Strategy EM2) Human Rights/ Child and Forced Labor EM3) Oppressive regimes
0% 0% 0% 0% 50% 20% 0% 0% 0%
H&S policies and systems, implementation and monitoring of those systems, performance (injury rate, etc.), safety-related incidents and controversies Customer initiatives, customer-related controversies, firm's support for public policies with noteworthy benefits for stakeholders Policies, systems and initiatives involving local communities (esp. indigenous peoples), controversies related to firm's interactions with communities Policies and systems to protect supply-chain workers' and contractors' rights, initiatives toward improving labor conditions, supply-chain-related controversies KEY ISSUE: RESPONSIBLE INVESTING Incorporation of ESG into investment processes KEY ISSUE: PRIVACY AND DATA SECURITY Privacy policy and best practices, data breaches Default = 5, unless there is company specific exposure that is highly significant
Industry Report; IVA Profile DS - Customer Relations DS - Community and Society DS - Supply Chain DS - Impact of Products and Services DS - Product/Service Quality and Safety DS - Product/Service Quality and Safety
Policies, support for values in Universal Declaration of Human Rights, initiatives to promote DS Emerging Markets human rights, human rights controversies Controversies, substantive involvement in countries with poor human rights records DS - Human Rights: Civil and Political
Page 18 of 20
June 2011
Appendix: Scoring Methodology (continued)

IVA Factor IVA Subscore Weight Key Metrics
0% 0% Controversies including natural resource-related cases, widespread or egregious environmental impacts Emissions to air, discharges to water, emission of toxic chemicals, nuclear energy, controversies involving non-GHG emissions Water management and use, use of recycled materials, sourcing, sustainable resource management, climate change policy and transparency, climate change initiatives, absolute and normalized emissions output, controversies Default = 5, if no significant industry-specific risk identified Policies to integrate environmental considerations into all operations, environmental management systems, regulatory compliance, controversies Board independence, management of CSR issues, board diversity, compensation practices, controversies involving executive compensation and governance practices Establishment and monitoring of environmental performance targets, presence of environmental training, stakeholder engagement External independent audits of environmental performance Reporting frequency, reporting quality Presence of environmental training and communications programs for employees Certifications by ISO or other industry- and country-specific third party auditors Positive and negative impact of products & services, end-of-life product management, controversies related to environmental impact of products & services Policies to integrate environmental considerations into all operations and reduce environmental impact of operations, products & services, environmental management systems, regulatory compliance Beneficial products and services that reduce others' consumption of energy, production of hazardous chemicals, and overall resource consumption Percent of revenue represented by beneficial products & services described above
For More Information

See Data Supplement (DS) Environment Industry Report; IVA Profile
Environmental Risk ER1) Historic Liabilities Factors ER2) Operating Risk
ER3) Leading/ Sustainability Risk Indicators ER4) Industry Specific Risk Environmental Management Capacity EMC1) Environmental Strategy EMC2) Corporate Governance EMC3) Environmental Management Systems EMC4) Audit EMC5) Environmental Accounting/ Reporting EMC6) Env. Training & Development EMC7) Certification EMC8) Products/ Materials Environmental EO1) Strategic Competence Opportunity Factors EO2) Environmental Opportunity EO3) Performance
0%
Industry Report; IVA Profile
0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Industry Report; IVA Profile Industry Report; IVA Profile DS - Governance Structures DS - Management of Environmental Issues DS - Management of Environmental Issues DS - Reporting and Engagement DS - Management of Environmental Issues DS - Management of Environmental Issues DS - Impact of Products and Services DS - Management of Environmental Issues DS - Impact of Products and Services DS - Impact of Products and Services
0% 0%
Page 19 of 20
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Industry Report: Asset Management

Protecting Client Assets from ESG Risks

Down Maintain Up Down Maintain

Industry Report: Asset Management

Calls for the Period

AVERAGE RATING BY COUNTRY IN THIS ANALYTICAL SET:

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Industry Report: Asset Management

Companies Performance on the Key Issues

Responsible Investing 50%

Human Capital Development 30%

Privacy and Data Security 20%

Strong Downgrade Downgrade

Strong Upgrade Upgrade

Maintain Newly Initiated

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Industry Report: Asset Management

Companies Performance on Key Issues (continued)

Human Capital Development 30%

Privacy and Data Security 20%

IVA Rating & Movement BB BB BB BB B B B B B B B B B B B

Strong Downgrade Downgrade

Strong Upgrade Upgrade

Maintain Newly Initiated

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Industry Report: Asset Management

Key ESG Issues

ESG Event Impact on Share Price

2) Risk Management is assessed through the following metrics:

ESG Investment Controversy o

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Industry Report: Asset Management

ESG RISKS IN INVESTMENT PORTFOLIOS

Country Risk Exposure Analysis of Portfolio Assets

Governance and Political Risk

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Industry Report: Asset Management

ESG Risk by Regional Market

ESG Risk Exposure Analysis of Asset Class Mix

All Country World

Private Equity Alternatives

Governance and Political Risk

Fixed Income (Non-Corporate)

Geographic Constraints Emerging Market

Fixed Income (Corporate)

Cash and Money Market

Industry Report: Asset Management

Percentage of AUM by ESG Risk Level

100% 100% 100% 100% 97%

58% 51% 42% 30% 30% 13% 48%

52% 45% 46%

49% 50% 50%

Industry Report: Asset Management

Best Practices in ESG Integration

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Industry Report: Asset Management

ESG Integration by Percentage of Client Assets