Johannesburg, 30 April 2018 — Global Credit Ratings has today accorded BCI Money Market Fund a national scale fund rating* of AA(ZA)(f); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above fund rating to BCI Money Market Fund (“BCI MMF”, “the fund”), key features of which are summarised below.
|Fund currency||South African Rand|
|Fund data review date||31 January 2018|
|Assets under management (“AUM”)||R0.56bn|
|Net asset value (“NAV”)||Targeted constant price of R1.00|
|Fund benchmark||Short Term Fixed Interest (“STeFI”) 3-month Index|
Fund profile: BCI MMF, which has a fixed income mandate executed in favour of its retail and institutional/corporate investors, seeks to maximise interest income whilst preserving capital and offering same day liquidity. The fund complies with regulatory requirements for money market funds, its investment policy, and the trust deeds.
Manager profile: Aluwani Capital Partners Proprietary Limited/BCI Collective Investments (RF) (Pty) perform the investment/fund management functions in house, outsourcing selected administration activities. Based on the investment manager’s track record, it possesses the competence, capability and capacity to manage the fund. Good quality management practices, compliance and risk monitoring, and operational and systems environments aim to meet performance objectives within mandate constraints. Furthermore, the fund’s marketing, risk management, compliance, administration and performance reporting follow international best practice.
Investment performance: The fund’s monthly gross annualised returns over the past three years have exceeded benchmarks since February 2015, while 0.07% volatility over a three-year time horizon supports a low volatility risk assessment of the portfolio. AUM have been volatile in the past three years, partly due to the institutional focus of the portfolio and therefore receiving lumpy inflows and redemptions. In that regard, investor flows are volatile but the fund has adequate strategies in place to simultaneously meet investment objectives and manage liquidity, including maintaining adequate levels of liquid assets (with minimum short-term national scale credit ratings of ‘A2(ZA)’ or equivalent).
Portfolio quality and market risk: GCR has analysed the portfolio in terms of credit/concentration risk and tenor/duration (relative to limits), while considering additional sources of market risk. BCI MMF’s weighted average credit rating (“WACR”) – the initial credit risk filter calculation – is ‘AA(ZA)’. GCR considers the fund’s underlying WACR score, tenor and duration limits, fund volatility, concentration and structural risks in determining whether an adjustment to the WACR is required, in according the overall fund rating.
Key fund risks: Very high credit counterparty concentration is the fund’s key risk. Credit concentration is a systemic issue in South Africa, affecting most or all variable rate, money-market type fixed income funds (due to the high proportion of investments in financial institutions). The portfolio’s weighted average legal maturity was 106 days at 31 January 2018, while weighted average duration (“WAD”) was inside the mandated limit (90 days).
Rating triggers: An increase in the WACR of the portfolio, accompanied by stability or improvement in credit concentration risk, WAD well below mandate limit, and a longer manager track record, could trigger a positive rating action. A negative rating action may follow mandate breaches, and/or deterioration in credit, liquidity or concentration risks.
* 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 2018)|
|Fund rating: AA(ZA)(f)|
|Rating outlook: Stable|
|Primary Analyst||Committee Chairperson|
|Simbarake Chimutanda||Marc Chadwick|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Funds and Asset Managers, updated March 2018
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.
Aluwani Capital Partners Proprietary Limited and Boutique Collective Investments (RF) (Pty) participated in the rating process via face-to-face management meetings 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 Aluwani Capital Partners Proprietary Limited and Boutique Collective Investments (RF) (Pty) with no contestation of the rating.
The information received from Aluwani Capital Partners Proprietary Limited and Boutique Collective Investments (RF) (Pty), 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;
- Details regarding the fund management, investment management and administration activities of the fund;
- Financial statements for Aluwani Capital Partners Proprietary at 30 June 2017;
- Corporate governance and enterprise risk framework; and
- Industry comparative data and regulatory framework.
The rating above was solicited by, or on behalf of, Aluwani Capital Partners Proprietary Limited, and therefore, GCR has been compensated for the provision of the rating.
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.|
|Corporate Governance||Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.|
|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.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Interest Rate||The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.|
|Interest Rate Risk||Interest rate risk in the banking book is the risk that earnings or economic value will decline as a result of changes in interest rates. The sources of interest rate risk in the banking book are repricing/mismatch, basis and yield curve risk.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|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 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.|
|National Scale Rating||Provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|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.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Outlook||Indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Securities||Various instruments used in the capital market to raise funds.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|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.|
For a detailed glossary of terms please click here
GCR accords a fund rating* of AA(ZA)(f) to BCI Money Market Fund; Outlook Stable.