Johannesburg, 25 March 2020 – GCR Ratings has affirmed the national scale fund rating of AA+(ZA)(f) on Ninety One (formerly Investec Asset Management) Money Market Fund; with the outlook accorded as Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Ninety One Money Market Fund||Fund Rating||National||AA+(ZA)(f)||Stable Outlook|
|Fund inception date||02 May 1997|
|Fund currency||South African Rand|
|Fund data review date||31 January 2020|
|Assets under management (“AUM”)||R30.8bn|
|Net asset value (“NAV”)||Targeted constant price of R1.00|
|Fund benchmark||STeFI 3-month Index|
GCR Ratings (“GCR”) has affirmed the above fund rating on Ninety One (formerly Investec Asset Management) Corporate Money Market Fund (“INMON”, “the fund”), key features of which are summarised below.
In determining a fund rating, GCR qualitatively assesses the fund’s underlying asset quality, and performs an evaluation of management quality, 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 criteria:
Asset manager profile: In March 2020, Investec Asset Management (“IAM”) was unbundled from Investec Group to be separately listed as Ninety One Limited (“Ninety One”) on Johannesburg Stock Exchange and Ninety One Plc on London Stock Exchange. Shareholders and management considered the move as strategic to unlock value from the group and enhancing focus to each company’s core business. In the unbundling, Ninety One retained IAM’s staff and resources which GCR believes ensures requisite competence, capability and capacity to achieve the fund’s performance objectives within mandate constraints. Like in the IAM regime, Ninety One performs fund/investment management functions in house, outsourcing selected administration functions. GCR assesses INMON as being managed within a strong fund management and control environment, which is supportive of the rating.
Fund profile: The conservative fixed income mandate of Ninety One Money Market Fund seeks to maximise interest income, while maintaining a high degree of liquidity and capital preservation, attracting primarily corporate, institutional, and retail investors. INMON features same day liquidity and targets investors with a 3-month (or longer) investment horizon. The fund has demonstrated regulatory, mandate, and investment policy compliance.
Investment performance: The fund’s return has exceeded the benchmark over the past 3 years. 1-year volatility is assessed as very low (3- and 5-year volatility: low). AUM have been volatile for the past 3 years but asset retention has been by and large consistent over time, indication of the mandate’s attractiveness as the market shifts from riskier mandates.
Portfolio quality and market risk: GCR’s portfolio analysis considered credit/ concentration risk, tenor/duration (and limits), and additional sources of market risk. INMON’s stress-tested weighted average credit rating (“WACR”) is ‘AA(ZA)’. Interest rate risk is assessed as very low given that regulation limits the weighted average duration (“WAD”) of the fund to 90 days. Sensitivity to spread risk is also very low, as regulation caps the fund’s weighted average legal maturity (“WAM”) at 120 days and limits final maturity of an individual asset to 13 months.
Key fund risks: Counterparty/investor concentrations and liquidity. High investor concentration reflects the fund’s client base. However, GCR takes cognisance that the top investors are large and long-standing institutional clients of the fund, which have stable profiles. Credit concentration (assessed as very high for INMON) is a systemic issue in South Africa (“SA”), and affects most interest-bearing MM funds, due to the typically high allocation of investments in financial institutions in these funds’ portfolios. The fund’s concentrated investor base and same day liquidity offering leave it susceptible to large and volatile fund (out)flows. Nevertheless, adequate liquidity management strategies are in place to manage liquidity, including investor concentration monitoring, and holding adequate levels of liquid assets.
The outlook is stable, reflecting a strong fund manager profile, adequate liquidity, sufficient track record, demonstrated and expected appropriate management of fund’s maturity profile.
In light of the ongoing global COVID-19 pandemic, GCR expect a more volatile operating environment for 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 generally, depending on the length and economic toll of the ongoing situation. There exists possibility of negative migration in credit quality of invested assets if the situation persists beyond initial projected timelines of 3-4 months. In the meantime, we expect the funds to hold higher than usual liquidity as mitigant.
An increase in the WACR of the portfolio, accompanied by a reduction in tenor and improvement in concentration risks and a track record of performance could positively impact the rating. Failure to hold adequate levels of liquidity, mandate change or breaches and/or deterioration in the fund’s WACR and increased concentration risk could lower the rating.
|Primary analyst||Kudzanai Samanga||Financial Institutions Analyst|
|Johannesburg, ZA||KudzanaiS@GCRratings.com||+27 11 784 1771|
|Secondary analyst||Thandolwenkosi Mkwanazi||Financial Institutions Analyst|
|Johannesburg, ZA||ThandolwenkosiM@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Global Master Criteria for Rating Funds and Asset Managers, updated March 2017|
|Investec Corporate Money Market Fund rating report, 2019.|
Ninety One Corporate Money Market Fund
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Fund rating||Initial rating||National||AA+(ZA)(f)||Stable||March 2016|
|Last rating||National||AA+(ZA)(f)||Stable||March 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.
Ninety One Limited participated in the rating process via a video call management meeting 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 Ninety One Limited.
The information received from Ninety One 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;
- Fund investment mandate;
- Detail on historical fee structures, and expense ratios;
- 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;
- Corporate governance and enterprise risk framework; and
- Regulatory framework and data.
The rating above was solicited by, or on behalf of, Ninety One Limited, and therefore, GCR has been compensated for the provision of the rating.
- 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). ↑