|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Chapel Hill Denham Money Market Fund||Fund Rating||National||AA-(NG)(f)||Stable Outlook|
|Fund inception date||December 1999|
|Fund currency||Nigeria Naira|
|Fund data review date||December 2021|
|Asset under management (“AUM”)||N2.1bn|
|Net asset value (“NAV”)||N2.1bn|
|Fund benchmark||Treasury bills yield|
|Fund manager||Chapel Hill Denham Management (“CHDM”)|
The rating of Chapel Hill Denham Money Market Fund (“CHDMMF”) reflects the weighted average credit quality of the asset portfolio, low maturity and duration risk, as well as manager’s good track record.
CHDMMF has a long track record of over two decades, as an open-ended unitised scheme, managed by Chapel Hill Denham Management Limited. The investment mandate is broadly conservative and enable unitholders to invest in a diverse pool of high-quality short-term assets, including treasury bills (issued by the Federal Government of Nigeria)), bank placements, and commercial papers with at least minimum investment grade credit rating.
The weighted average credit quality of the portfolio as at December 2021 was broadly in line with previous year, with exposures distributed across top and mid-tier banks and financial institutions with investment grade ratings. While we noted that the fund manager slightly reduced its investment in risk-free assets further to about 25% of the total fund under management at FY21 (FY20: 28%), the portfolio remains well balanced with robust call placements and short-dated investments in commercial papers of investment grade rated entities, in line with the fund’s investment guideline. Going forward, we expect overall credit quality to remain sound, albeit that the weighted average credit quality score may fluctuate from time to time within reasonable range due to the wide range in credit scores of allowable instruments under the fund mandate.
We considered maturity and duration risk to be low. As a money market instrument, CHDMMF has been invested in largely short-dated instruments which can easily be traded should liquidity need arises. As such, weighted average maturity stood within the 30 to 90 days maturity bucket and duration within 31days. An average of the two scores is reflected at 1.25 positive.
Management assessment is neutral to the rating. Management’s track record is sound and supportive of the rating. Also, the fund continuously outperformed the benchmark returns, as observed in prior years. We have not taken any adjustment or haircut in our assessment as we do not expect significant volatility in the portfolio over the short- term, however, we will continuously monitor this position.
Liquidity is considered neutral to the rating because the investment portfolio is dominated by liquid and short-term assets, with about 49% of the assets placed with banks with good credit quality. In addition, GCR considers investor concentration to be moderate as at the review date.
The stable outlook reflects our expectation that the manager will continue to invest in high quality instruments, with low maturity and duration risk, with no expectations around volatility of performance or weighted credit quality.
Increase in weighted average credit quality, with good level of diversification in counterparties of the underlying instrument may result in a rating uplift. However, a decline in credit quality score, deterioration of liquidity or breach of mandate may impact the rating negatively.
|Primary analyst||Funmilayo Abdulrahman||Senior Analyst, Financial Institutions|
|Lagos, NG||Funmilayo@GCRratings.com||+234 1 904 9462|
|Committee chair||Vinay Nagar||Senior Analyst, Financial Institutions|
|Johannesburg, ZA||Vinay@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, January 2022|
|Criteria for Fund Ratings, July 2020|
|GCR Ratings Scale, Symbols & Definitions, May 2019|
Risk Score Summary
|Rating Components & Factors||Risk scores|
|Weighted average credit quality||8.50|
|Credit quality portfolio adjustments||-0.50|
|Maturity & interest rate risk||1.25|
|Weighted average maturity & interest||1.25|
|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 ratings were influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to Chapel Hill Denham Management Limited. 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.
Chapel Hill Denham Management Limited participated in the rating process via telephonic 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 Chapel Hill Denham Management Limited and other reliable third parties to accord the credit ratings included:
- A breakdown of the fund investment portfolio, including information on the instruments, their terms, conditions and credit quality;
- Fund investment mandate;
- Details regarding the fund management, investment management and administration activities of the fund