|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|BCI Money Market Fund||Fund Rating||National||AA(ZA)(f)||Stable Outlook|
|Fund inception date||01 October 2008|
|Fund currency||South African Rand|
|Fund data review date||31 March 2020|
|Assets under management (“AUM”)||R1.7bn|
|Net asset value (“NAV”)||Targeted constant price of R1.00|
|Fund benchmark||STeFI 3-Month Index|
In determining a fund rating, GCR qualitatively assesses the fund’s underlying asset quality and performs an evaluation of management, the fund’s historical performance in terms of price/return volatility, and market and liquidity risks. The fund rating was based on the following key factors:
Fund profile: The fund’s investment objective is to provide investors with exposure to a diversified portfolio of money market instruments. BCIMMF has a fixed income mandate which aims to obtain as high a level of current income as is consistent with capital preservation and liquidity. The fund caters to retail, corporate and institutional investors. Regulation requires the fund’s weighted average modified duration (“WAD”) and weighted average legal maturity (“WAM”) not to exceed 90 and 120 days respectively. The fund may also not invest in an individual instrument with a remaining maturity of more than 13 months. BCIMMF offers one day liquidity.
Asset manager profile: The fund is managed by Boutique Collective Investments, and the investment management function is outsourced to Aluwani Capital Partners (“Aluwani”). Aluwani has a relatively short operational track record, however, it was formed as part of the partial unbundling of an asset manager with a long history and track record. GCR believes Aluwani possesses the competence, capability and capacity to manage the fund, based on skills and experience of portfolio managers. In addition, adequate compliance and risk management systems are in place to meet performance objectives within mandate constraints. GCR assesses BCIMMF as being managed within a very strong fund management and control environment.
Investment performance: From inception, the fund has achieved returns above those of the benchmark. Assets under management (“AUM”) continue to show strong growth, increasing by 74.2% to R1.7bn in March 2020, from R0.9bn in February 2019. However, the fund still remains relatively small compared to rated peers, resulting in it being more vulnerable to large liquidity events. GCR believes BCIMMF’s traditional Money Market mandate is well established and remains relevant.
Portfolio quality and market risk: GCR’s portfolio analysis considered credit/concentration risk, tenor/duration (and limits), fund returns volatility, and additional sources of market risk, in addition to BCIMMF’s stress-tested weighted average credit rating (“WACR”). BCIMMF’s credit concentration is very high, with 85.9% of the fund’s holdings exposed to South Africa’s top five banks at the review date. This is, however, a systemic issue affecting most rated interest-bearing funds, and is therefore in line with peers. At the review date, the fund’s WAD and WAM were 50 days and 111.5 days, respectively, which GCR assess to result in very low and low interest rate and maturity risk respectively. Volatility in the fund’s returns since inception is assessed as very low. The fund’s stress-tested WACR at the review date was AA(ZA) reflecting the high credit quality of the South African banks which account for the majority of the fund’s exposure.
Key fund risks: Liquidity risk (increased by very high investor concentration), and very high credit concentration are the fund’s key risks. The fund has adequate strategies in place to simultaneously meet its objectives and manage its liquidity risk. These include maintaining very close relationships with investors to be able to anticipate and plan for large withdrawals, holding high-quality instruments which are liquid in nature and through holding adequate cash balances as required. BCIMMF’s investor concentration is worse than rated peers, with the top 10 investors holding 64% of the fund.
The outlook is stable, reflecting a good fund and asset manager profile, sufficient track record, adequate liquidity management strategies, as well as demonstrated and expected appropriate management of the fund’s maturity profile.
In light of the ongoing global COVID-19 pandemic, GCR expect a more volatile operating environment for rated funds in South Africa. In particular, we expect unusually high fund flows (more appropriately large drawdowns) which could pose liquidity challenges on the funds and the market in general. Positively, we expect the funds to hold higher than usual liquidity. However, there could also be rapid negative migration in credit quality and the liquidity of invested assets. These factors could bring down the ratings of all rated peers, should the domestic stress increase.
Positive rating movement is likely should the fund sustain its credit quality and maturity profiles, while managing very high investor concentration in view of the relatively smaller fund size through the current volatile operating environment. Negative ratings movement could result from significant deterioration in portfolio credit quality, increases in maturity and interest rate risk, and/or regulatory/ mandate breaches.
|Primary analyst||Thandolwenkosi Mkwanazi||Financial Institutions Analyst|
|Johannesburg, ZA||ThandolwenkosiM@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
|Global Master Criteria for Rating Funds and Asset Managers, updated March 2017|
|BCI Money Market Fund rating reports, 2018-19.|
BCI Money Market Fund
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Fund rating||Initial||National||AA(ZA)(f)||Stable||April 2018|
|Fund rating||Last||National||AA(ZA)(f)||Stable||April 2019|
|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.|
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 and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Aluwani Capital Partners Proprietary Limited and Boutique Collective Investments (RF) (Pty) participated in the rating process via written and telephonic 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).
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 (where available);
- Details regarding the fund management, investment management and administration activities of the fund;
- Industry comparative data and regulatory framework.
The rating above was solicited by, or on behalf of, Boutique Collective Investments (RF) (Pty), and therefore, GCR has been compensated for the provision of the rating.