Lagos, 05 September 2019—Global Credit Ratings has accorded Chapel Hill Denham Money Market Fund first time, national scale fund* rating of AA-(NG)(f); with the outlook accorded as Stable. The rating is valid until March 2020.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above fund (“f”) rating to Chapel Hill Denham Money Market Fund (“CHDMMF”) based on the following key criteria:
Fund profile: CHDMMF is an actively managed open-ended mutual fund. The investment policy limits permissible investments to risk-free Federal Government of Nigeria (“FGN”) securities and financial instruments issued by highly rated institutions. Specifically, acceptable securities must have a minimum issuer or issue rating of ‘BBB (NG)’.
Asset manager profile: Chapel Hill Denham Management Limited (“CHDM” or “the manager”) has a performance track record of over two decades in Nigeria (including pre-acquisition operations as Denham Management Limited). CHDM has been accorded a management quality (“mq”) rating of BBB(NG)(mq) by GCR based on evaluation of its market position, financial sustainability, as well as portfolio and risk management framework.
Portfolio quality and market risk: So far, the fund has been investing exclusively in high quality money market securities. The weighted average credit rating (“WACR”) fluctuated between AA+(NG) and AA(NG) during the review 21-month period, up to 31 December 2018. However, cognisance has been taken of the potential fluctuations in the WACR based on the investment mandate per the investment policy, which could vary between AA+(NG) and A-(NG).
Key fund risks: The nature of targeted investment securities, as well as the proposed portfolio mix, to a large extent, mitigate the fund’s exposure to liquidity risk, although the absence of an active secondary market for some of the eligible securities could temper liquidity somewhat. Interest rate risk is considered minimal, as the permissible investment securities are typically short tenured.
WACR, modified by concentration and market risk assessments, determines the fund’s overall rating. In this regard, GCR assesses concentration risk and return volatility as low, justifying a notch negative adjustment in the WACR to determine the fund rating.
A higher WACR based on actual, stable portfolio composition, in addition to strict compliance with the fund’s policy guidelines and relevant regulatory requirements, as well as establishing and maintaining an acceptable fund performance track record. A negative rating action may arise from (lowered WACR) an asset quality reduction relative to the proposed portfolio mix, non-compliance with mandate/regulations, and/or a negative rating action on the manager.
# 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 the published rating scales and definitions)
NATIONAL SCALE RATINGS HISTORY
Initial/ last rating (April 2019)
Fund rating: AA-(NG)(f)
Rating outlook: Stable
Senior Credit Analyst
+234 1 904 9462-3
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Funds and Asset Managers, updated March 2017
Glossary of Terms/Ratios, February 2016
RATING LIMITATIONS AND DISCLAIMERS
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 12 months, or as indicated by the applicable rating document.
Chapel Hill Denham Management Limited 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 Chapel Hill Denham Management Limited with no contestation of/changes to the rating.
The information received from Chapel Hill Denham Management Limited and other reliable third parties to accord the rating included the Chapel Hill Denham Money Market Fund’s Trust Deed, Custodian Agreement, the audited accounts of Chapel Hill Denham Money Market Fund for the year ended 31 December 2018, as well as the audited annual financial statements of Chapel Hill Denham Management Limited for the year ended 31 December 2018.
The rating above was solicited on behalf of, Chapel Hill Denham Management Limited. And therefore, GCR has been compensated for the provision of the rating.