GCR accords a fund rating of AA-(ZA)(f) to Sasfin BCI Optimal Income Fund; Outlook Stable.
Johannesburg, 9 May 2017 — Global Credit Ratings has accorded a national scale fund rating* of AA-(ZA)(f) to Sasfin BCI Optimal Income Fund; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above fund rating to Sasfin BCI Optimal Income Fund (“SBOIF”, “the fund”), key features of which are summarised below.
|Fund inception date||01 December 2016|
|Fund currency||South African Rand|
|Fund data review date||31 January 2017|
|Assets under management (“AUM”)||R113m|
|Net asset value (“NAV”)||Market value|
|Fund benchmark||STeFI Composite Index|
In determining a fund rating, GCR qualitatively assesses the fund’s management, and performs an evaluation of the fund portfolio’s historical performance in terms of price/return volatility, underlying asset quality, and market and liquidity risks. While SBOIF’s stress-tested weighted average credit rating (“WACR”) is ‘AA+(ZA)’, the rating is constrained to AA-(ZA)(f) due to the flexible mandate, lack of an implementation track record, and exposure to volatility given long asset tenors. The fund rating was based on the following key criteria:
Fund profile: SBOIF’s mandate aims to deliver an average after-tax yield in excess of money market portfolio yields, while preserving the capital invested. Institutional and high net worth investors have seeded SBOIF, while the mandate may have broader appeal. Regulatory, mandate, and investment policy compliance are evident. SBOIF features 2 day liquidity and a 1 year duration limit.
Asset manager profile: Sasfin Asset Managers (Proprietary) Limited (“SAM”) is the mandated investment manager, the Manco, Boutique Collective Investments (RF) Proprietary Limited (“BCI”), also performs investor administration, and asset administration and trading are outsourced. GCR assesses SBOIF as being managed within a very strong fund management and control environment, supporting the rating. The capacity, capability and competence of BCI and SAM are expected to facilitate achievement of performance objectives within mandate constraints. Control and compliance processes within/between fund counterparties and participants in asset creation/execution are considered to be adequately strong.
Investment performance: The fund’s performance/volatility measurement period is too short to be meaningful. SBOIF’s NAV at 31 January 2017 indicated no or limited capital losses on underlying instruments. SBOIF’s AUM has grown 3-fold in the 4 months since its launch, largely as a result of the unique profile and target after-tax yields. SBOIF appears to have adequate strategies in place to simultaneously meet investment objectives and manage liquidity. Strategies include maintenance of close relationships with selected large investors, at least 10% of the portfolio in liquid assets, 2-day liquidity, transparent 3-5 day tradability in core investments, and a focus on instruments with long term credit ratings of at least ‘A(ZA)’, or equivalent.
Portfolio quality and market risk: GCR’s portfolio analysis considered credit/concentration risk, tenor/duration (and limits), and other sources of market risk, in addition to SBOIF’s stress-tested WACR of ‘AA+(ZA)’, in determining the fund rating. The fund’s short track record, indeterminate volatility and long portfolio tenor result in an initial ‘moderately high’ market risk assessment, which may be adjusted as data becomes available.
Key fund risks: Very high investor concentrations, and a long-dated instrument profile (weighted average maturity of 4.7 years), vs. 2 day liquidity, are SBOIF’s key risks. The portfolio modified duration is well inside the 1 year limit. Credit concentration is adequate.
The fund’s high WACR limits upside rating potential. A sustained track record of low volatility, above-benchmark returns and evidence of a conservative balance between withdrawals and liquidity levels could enhance the rating. Mandate breaches, rising investor concentrations, and/or significant deterioration in credit, liquidity and/or market risks metrics could have a negative impact on the ratings.
* Fund ratings provide an opinion regarding the fund’s ability to preserve principal value under varying market conditions; with reference to the relevant asset management environment (refer to published rating scales and definitions).
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (April 2017)|
|Fund rating: AA-(ZA)(f)|
|Rating outlook: Stable|
|Primary Analyst||Committee Chairperson|
|Omega Collocott||Jennifer Mwerenga|
|Sector Head: Financial Institution Ratings||Senior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Funds and Asset Managers, updated March 2017
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable fund rating document.
Sasfin Asset Managers (Proprietary) Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The fund rating has been disclosed to Sasfin Asset Managers (Proprietary) Limited with no contestation of the rating.
The information received from Sasfin Asset Managers (Proprietary) Limited and other reliable third parties to accord the fund rating included:
- A breakdown of the fund investment portfolio, including information on the instruments, their terms, conditions and credit quality;
- A breakdown of the fund investor portfolio, including fund flows and withdrawal terms;
- Detail on historical fund returns, fee structures, and expense ratios (where available);
- Details regarding the fund management, investment management and administration activities of the fund;
- Financial statements for Sasfin Holdings Limited (at 30 June 2016);
- Corporate governance and enterprise risk framework; and
- Industry comparative data and regulatory framework.
The rating above was solicited by, or on behalf of, Sasfin Asset Managers (Proprietary) Limited, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long-Term||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Net Asset Value||The value of an entity’s assets less its liabilities. It is a reflection of the company’s underlying value and is usually quoted on a per share basis.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short-Term||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Tenor||The time from the value date until the expiry date of a financial instrument.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
For a detailed glossary of terms please click here
GCR accords a fund rating of AA-(ZA)(f) to Sasfin BCI Optimal Income Fund; Outlook Stable.