How many "buy-side" investment clients would pay between $20,000 to $40,000 service fees for big 3 credit rating agency - Moody'


I am doing research on the credit rating industry. There is much controversy among Credit rating agency's business model post sub-prime. The issuer pay model clearly has serious conflict of interests. Beside income from debt issuers, does anyone know roughly how many investment clients (e.g. buy side hedge fund or mutual fund) would actually pay Big 3 agencies between $20,000 to $40,000 on advisory fees?

Thanks. Need your opinions urgently.

Comments (5)

Jul 31,2010

My perspective:
Hedge fund-not many; if I were paying 2&20 I'd want original thinking. One exception may be CDO managers, whose agreements often require certain ratings in order to manage the risk for the various tranches.

Other buysiders (insurance companies, mutual funds) may be willing to pay. Certain subsectors are dependent on ratings to prove their investments are sufficiently low-risk.

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Jul 31,2010

credit hedge funds would very frequently use S&P and Moodys online portals for ratings/analystics/research/etc, and even those cost tens of thousands per year...
but making investors pay for ratings is a retarded idea, the whole point of new legislation is to make it more transparent and accessible....i.e. if 1 agency is "hired" by an issuer, it has to disclose all information that the issuer gave it to other NRSROs so they could, if they wanted to, give unsolicited ratings.
issuer pays is the best model, you just have to keep business side and rating analytics side separate. ibanks managed a chinese wall just fine its no big deal

Aug 31,2010

Reiterating edomerp's assessment above. Very unlikely... I interned at a really big one (at the time they had 5-6BN USD AUM) and were reluctant to purchase "products" such as credit agencies, btw in their opinions agencies are not highly regarded. As if these buy-side firms don't already pay enough for top tier products.

Aug 31,2010

They don't pay for ratings, they pay for bespoke analytical reports. I wouldn't be surprised if some of the smaller, 3-partner no-analyst hedge funds would commission a bespoke investment report in an area they weren't sure of, but found appealing. Where did you derive that fee range from?

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Aug 31,2010