Large Investors Rely on Their Own Systems

October 15, 2010 by · Leave a Comment
Filed under: General, The Rating Agencies 

The Economic Times reported on how large investors are turning to their own rating systems, so as to not have to rely solely on credit rating agencies. The subjects interviewed said that they were able to seize investment opportunities ahead of their competitors who still depended on ratings set by the agencies.

Bill Gross, managing director of PIMCO, the world’s biggest bond investor, said that rating agencies “no longer serve a valid purpose for investment companies” if they do not become more nimble than they are currently.

Bob Pozen, chairman of MFS Investment Management, said that having an internal system allowed them to change direction more quickly. Commenting on other investors who rely on the slower-moving rating agencies, he said, “they can’t change a rating until the objective evidence becomes compelling. We look at objective evidence but also trends and market judgments.”

In spite of these shortcomings, Mr. Pozen also asserted that the rating agencies still served an important role as a longer-term reference for investors. MFS and PIMCO prove my point. Let’s delete the use of ratings from the federal register. You can invest without an NRSRO. Why is this so hard to see?

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