Johannesburg, 27 May 2021- GCR Ratings (“GCR”) has assigned Absa Prudential Money Market Fund national scale fund rating of AA+(ZA)(f) with the outlook accorded as Stable.
|Fund Name||Class||Scale||Rating Action||Rating||Outlook|
|Absa Prudential Money Market Fund||Fund Rating||National||Assigned||AA+(ZA)(f)||Stable|
The rating of Absa Prudential Money Market Fund (‘Absa PMMF’, ‘the fund’) reflects the weighted average credit quality (‘WACQ’) of the asset portfolio, low maturity/duration risk, strong manager track record, and appropriate liquidity for investor concentration.
Absa PMMF is a newly established money market fund (2 months of operation) that is managed explicitly in accordance with Regulation 28 and also complies with other regulatory requirements for unit trusts in South Africa. The mandate is conservative and broadly similar with other domestic short-term interest-bearing funds. The fund targets both institutional and retail money and seeks to maximise return within constraints of capital preservation and liquidity requirements.
The weighted average credit quality of the asset portfolio was 16.25 as of 30 April 2021, with exposures distributed in the big five domestic banks and the South African sovereign. We make no negative adjustment for counterparty concentrations as this is a common feature in most South African cash strategy funds because mandates typically restrict the investment universe to top tier banks and sovereign backed instruments, and the structure of the banking sector is oligopolistic. Positively, the top tier banks in South Africa are typically of strong credit quality and well regulated.
Maturity and duration risk is very low, reflected by average weighted average maturity and duration of 114 days and 113 days respectively. Due to the low-risk mandate limiting the transmission of volatility in the portfolio, we provide a +1 uplift to the rating.
Management assessment is neutral to the rating. Nonetheless, a strong manager track record is viewed positively to support rating of the fund with a short operational history. Franchise is stable and profitable, and we expect growth of assets under management to benefit on the back of this. Given the short operational history of the fund, there are no performance numbers to report however the benchmark is the Short-Term Fixed Interest Composite Index (‘STeFI’).
Liquidity is rating neutral, balancing risks of investor concentrations and adequate levels of liquidity. Concentrations are typical for new funds and GCR provides a one-year grace period for normalisation as the fund scales up. GCR is comfortable with the current levels of liquidity the fund holds. At 30 April 2021, close to 30% of portfolio assets was cash on call which is high relative to the average of most managers. Liquidity is also supported by short-dated instruments that are senior ranking obligations of high credit quality issuers and a good secondary market for senior class instruments.
Although the fund is still new with a short operational history, we believe the current portfolio is indicative of the investment philosophy and that it will remain broadly the same within mandate guidelines. The outlook is stable on the balance, as we expect the strong weighted average credit quality, maturity and interest rate risk profile, strong manager track record and liquidity profile to remain supportive of the rating.
An increase in the WACQ and improvement in concentration metrics is positive for the fund rating. A negative rating action would be taken if there is a decrease in WACQ, deterioration in liquidity and/or mandate breach.
|Primary analyst||Simbarake Chimutanda||Financial Institutions Analyst|
|Johannesburg, ZA||SimbarakeC@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
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Fund Ratings, July 2020|
|GCR Rating Scales, Symbols and Definitions, May 2019|
Absa Prudential Money Market Fund
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Fund rating||Initial/last||National||AA+(ZA)(f)||Stable||May 2021|
Risk score summary
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|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 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.|
|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 RATING
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.
Absa Prudential Money Market Fund participated in the rating process via virtual 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 Absa Prudential Money Market Fund.
The information received from Absa Prudential Money Market Fund 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 as at 30 April 2021;
- A breakdown of the fund investor portfolio, including fund flows and withdrawal terms as at 30 April 2021;
- 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, Absa Prudential Money Market Fund, and therefore, GCR has been compensated for the provision of the rating.