Johannesburg, 30 April 2019 — Global Credit Ratings has affirmed BCI Money Market Fund’s national scale fund rating* of AA(ZA)(f); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has affirmed the above fund rating on BCI Money Market Fund (“the fund”), key features of which are summarised below.
|Fund currency||South African Rand|
|Fund data review date||28 February 2019|
|Assets under management (“AUM”)||R0.993bn|
|Net asset value (“NAV”)||Targeted constant price of R1.00|
|Fund benchmark||Short Term Fixed Interest (“STeFI”) 3-month Index|
The fund rating on BCI Money Market Fund reflects its category within the collective investment scheme for money market unit trusts in South Africa, balancing a very low risk investment mandate, high issuer/investor concentrations, good liquidity and, the relatively short track record of the manager. The fund targets retail and institutional investors seeking to maximise return within the constraints of capital preservation and high liquidity requirements.
Portfolio quality: The portfolio’s weighted average credit rating (“WACR”) of AA(ZA) is considered to be strong, although its exposed to high issuer/counterparty concentrations. This concentration is a common feature in most South African money market funds because mandates typically limit the investment universe to top tier banks and government backed instruments, and the structure of South Africa’s banking sector is oligopolistic. Positively, the top tier banks in South Africa are typically of strong quality and well regulated. On the other hand, mandate flexibility from the lower required minimum short-term rating of A2(ZA) or equivalent for permissible assets is viewed negatively. GCR, however, notes that the fund currently is not investing in A2(ZA) rated instruments.
Liquidity risk: Liquidity is a neutral rating factor, balancing the risks of high investor/liability concentrations and good liquidity of most instruments in the fund. At 28 February 2019, top 10 investors (out of a total of 242) contributed 60% of total portfolio investments. High investor concentrations are a result of the fund’s institutional client focus. However, liquidity is good, supported by short-dated instruments that are senior ranking obligations of high credit quality issuers and, a good secondary market for senior classes. GCR does not provide an uplift to the WACR based on liquidity.
Market risk and performance: The fund, just like other money market funds, has a conservative investment mandate that aims to limit the transmission of market volatility into the portfolio, as measured by tenor/duration. On the other hand, returns are a function of liquidity/credit premiums on maturity of instruments, and have continued to exceed benchmark within duration constrains. Good growth in AUM over the review period is a positive rating factor not only for stability but GCR also thinks investor concentrations may reduce as a result, while margin on assets may improve as well.
Manager track record: Aluwani has a short operational track record. However, GCR thinks that the manager 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 aim to meet performance objectives within mandate constraints.
Rating triggers: An increase in the WACR, supported by an increase in the minimum rating of permissible assets, improvement in concentration metrics and growth in AUM is positive for the fund rating. A negative rating action would be taken if there is a decrease in WACR, deterioration in liquidity and mandate breach.
* 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||Yohan Assous|
|Financial Institutions Analyst||Sector Head: Structured Finance 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).
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;
- 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
|Compound Annual Growth Rate (CAGR)||The year on year percentage growth rate of an investment over a given period of time. It is found by calculating: CAGR= ending value begining value 1 # of periods −1|
|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.|
|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.|
|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 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.|
|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.|
|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.|
|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.|
|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 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.|
|Tenor||The time from the value date until the expiry date of a financial instrument.|
|Treasury Bill||Short-term obligation backed by the government that bears no interest and is sold at a discount.|
|Trustee||A person or firm that holds or administers property or assets for the benefit of a third party.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
For a detailed glossary of terms please click here