Johannesburg, 18 October 2021 – GCR Ratings (“GCR”) has affirmed the national scale fund rating* of AA+(ZA)(f) on the BCI Money Market Fund, with the outlook accorded as Stable.
|Rated Entity||Rating class||Rating scale||Rating*||Outlook / Watch|
|BCI Money Market Fund||Fund rating||National||AA+(ZA)(f)||Stable|
|*||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).|
|Fund inception date||1 October 2008|
|Fund currency||South African Rand|
|Assets under management (“AUM”)||R2bn|
|Fund benchmark||STeFI 3-month Index|
|Net asset value (“NAV”)||Targeted constant price of R1.00|
|Association for Savings and Investment South Africa (“ASISA”) classification||South Africa – Interest Bearing – Money Market|
Fund profile: The BCI Money Market Fund (‘BCI MMF’, ‘the fund’) aims to deliver total returns exceeding those offered by money market funds. The mandate prioritises capital preservation, low risk and high liquidity, attracting retail and corporate/institutional investors with a short investment horizon.
Weighted Average Credit Quality (‘WACQ’): The weighted average credit quality of the asset portfolio was 16.5 as of 31 March 2021, with exposures distributed in the big five domestic banks, the South African sovereign and securitisation vehicles. We make no negative adjustment for counterparty concentrations as this is a common feature in most South African cash strategy funds because mandates typically restrict the investment universe to top tier banks and sovereign backed instruments, and the structure of the banking sector is oligopolistic. Positively, the top tier banks in South Africa are typically of strong credit quality and well regulated.
Maturity & Duration The fund’s mandate caps Weighted Average Duration (‘WAD’) and Weighted Average Maturity (‘WAM’) at 90 days and 120 days respectively and limits final maturity of any individual portfolio assets to 13 months. The fund tilted to shorter-term and shorter duration assets in 2021, and therefore maturity and duration remained within limits and to levels supportive of the rating. WAM and WAD averaged 110 and 45 days over the past 12 months and we provide 0.75 risk score uplift for limited interest rate risk.
Management & Governance: Management assessment is neutral to the rating. Nonetheless, a strong manager track record is viewed positively. Franchise is still growing but assets under management have registered good growth across different fixed income products of the manager over the last 3 years. Performance is stable with fund returns in excess of benchmark.
Liquidity: Liquidity is rating neutral, balancing very high concentrations and adequate levels of liquidity. Investor concentrations are high with top 10 investors accounting for 79% of total funds on 31 March 2021. Positively, liquidity is adequate to manage such concentrations with the big five domestic banks representing around 85% of portfolio assets which are short-dated instruments and senior ranking obligations. Redemption risk is also managed by close contact with the investors and strong understanding of the seasonality and behaviour of cash flows.
The Stable outlook reflects our expectations for a stable WACQ dominated by the top tier banks, moderate exposure to the sovereign and good rated securitisation vehicles. We expect AUM growth to continue, performance to be adequate and liquidity to remain robust.
If the WACQ remains at higher levels and the mandate demonstrates more conservativism, we could raise the ratings. Conversely, a significant moderation in the quality of assets, increase in maturity/duration and/ or reduction in the liquidity without a simultaneous reduction in concentrations could bring down the ratings, however this is unexpected over the ratings horizon.
|Primary analyst||Simbarake Chimutanda||Financial Institutions Analyst|
|Johannesburg, ZA||SimbarakeC@GCRratings.com||+27 11 784 1771|
|Committee chair||Vinay Nagar||Senior Financial Institutions Analyst|
|Johannesburg, ZA||Vinay@GCRratings.com||+27 11 784 1771|
Related criteria and research
|Criteria for the GCR Ratings Framework, May 2019|
|GCR Rating Scales, Symbols & Definitions, May 2019|
|Criteria for Fund Ratings, July 2020|
|Rated Entity||Review||Rating class||Rating scale||Rating||Outlook/Watch||Date|
|BCI Money Market Fund||Initial||Fund rating||National||AA(ZA)(f)||Stable Outlook||April 2018|
|Last||Fund rating||National||AA+(ZA)(f)||Stable Outlook||November 2020|
Risk score summary
|Cash||Funds that can be readily spent or used to meet current obligations.|
|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.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Downgrade||The assignment of a lower credit rating to a company or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.|
|Fixed Deposit||Where funds are deposited in a savings account for a pre-determined period of time.|
|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.|
|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. 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 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.|
|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.|
|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.|
|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||Current; ordinarily less than one year.|
|Tenor||The time from the value date until the expiry date of a financial instrument.|
Salient Points 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.
The fund rating has been disclosed to BCI Money Market Fund. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
BCI Money Market Fund participated in the rating process via virtual management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from BCI Money Market Fund 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;
- Details regarding the fund management, investment management and administration activities of the fund; and
- Industry comparative data and regulatory framework.