Johannesburg, 4 April 2016 — Global Credit Ratings has today accorded Investec Corporate 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 Investec Corporate Money Market Fund (“CORPMM”, “the fund”), key features of which are summarised below, based on the following key criteria:
| Fund summary | |
| Fund currency | South African Rand |
| Fund data review date | 31 December 2015 |
| Assets under management (“AUM”) | R13.6bn |
| Net asset value (“NAV”) | Targeted constant price of R1.00 |
| Fund benchmark | Short Term Fixed Interest (“STeFI”) Call Deposit Index |
Fund profile, objective and investment policy: CORPMM has a conservative fixed income mandate aimed at achieving returns in excess of call rates. The mandate, which is executed in favour of the fund’s primarily corporate/institutional investors, seeks to maximise interest income whilst preserving capital and offering high liquidity. CORPMM complies with regulatory requirements for money market funds, investment policy, and the trust deeds, and features same day liquidity and duration not exceeding 3 months.
Asset manager profile: Investec Asset Management (Proprietary) Limited (“IAM”) performs the fund and investment management functions in house, outsourcing selected administration activities. Based on the manager’s track record, it possesses the competence, capability and capacity to manage the fund. High 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 and administration follow international best practice.
Investment performance: The fund’s 12 month rolling return has exceeded the benchmark yields over the past 3 years, while very low volatility over 1, 3 and 5 year time horizons supports a ‘very low risk’ assessment. CORPMM’s simple structure, conservative investment bias and return profile have resulted in increased AUM over the past 3 years. Investor flows may be volatile, but the fund has adequate strategies in place to simultaneously meet its investment objectives and manage liquidity. Strategies include investor concentration limits, client relationships and communication, and high levels of liquid assets (rated at least ‘A1(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. CORPMM’s weighted average credit rating (“WACR”) – the initial credit risk filter calculation – is ‘AA(ZA)’. GCR considers the fund’s underlying WACR score, tenor/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: High counterparty credit concentration and investor concentrations, as well as asset/liability maturity mismatches, are the fund’s key risks. The portfolio’s weighted average legal maturity is 116 days, while weighted average duration is well inside the mandated limit (90 days). Credit concentration reflects the fund’s investment guidelines and the structural characteristics of the South African market (due to the high proportion of investments in financial institutions).
An increase in the WACR of the portfolio, accompanied by stability or improvement in concentration risks, could enhance the rating. Mandate breaches, and/or deterioration in credit, liquidity and/or concentration risks, could negatively affect the rating.
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* 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: First time/new rating | ||
| Outlook: First time/new rating |
ANALYTICAL CONTACTS
| Primary Analyst | Secondary Analyst | |
| Kuzivakwashe Murigo | Omega Collocott | |
| Credit Analyst | Sector Head: Financial Institution Ratings | |
| (011) 784-1771 | (011) 784-1771 | |
| murigo@globalratings.net | omegac@globalratings.net | |
| Committee Chairperson | ||
| Jennifer Mwerenga | ||
| Senior Credit Analyst | ||
| (011) 784-1771 | ||
| jennifer@globalratings.net |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Funds and Asset Managers, updated March 2015
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.
Investec Asset Management (Proprietary) Limited participated in the rating process via face-to-face management meetings, tele-conferences 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 Investec Asset Management (Proprietary) Limited with no contestation of the rating.
The information received from Investec Asset Management (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;
- Details regarding the fund management, investment management and administration activities of the fund;
- Financial statements for Investec Asset Management (Proprietary) Limited at 31 March 2015;
- Corporate governance and enterprise risk framework; and
- Industry comparative data and regulatory framework.
The rating above was solicited by, or on behalf of, Investec Asset Management (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. |
| 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. |
| Credit Risk | The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due. |
| Financial Institution | An entity that focuses on dealing with financial transactions, such as investments, loans and deposits. |
| Institutional Investors | Financial institutions such as pension funds, asset managers and insurance companies, which invest large amounts in financial markets on behalf of their clients. |
| Interest | Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan. |
| 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. |
| 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. |
| 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. |
| 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. |
| 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 utilised in this announcement please click here
GCR accords a fund rating* of AA+(ZA)(f) to Investec Corporate Money Market Fund; Outlook Stable.
