RPT-Fitch: South African Money Market Funds Sector Review

Tue Apr 1, 2014 4:25am EDT

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April 1 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has completed a sector review of South African money market funds (MMFs), which resulted in the affirmation of the National Fund Credit Ratings (NFCRs) and National Fund Volatility Ratings (NFVRs) of the following six MMFs at 'AA+(zaf)'/'V1(zaf)'.

--Absa Money Market Fund

--Investec Corporate Money Market Fund

--Investec Money Market Fund

--Nedgroup Investments Corporate Money Market Fund

--Nedgroup Investments Money Market Fund

--STANLIB Corporate Money Market Fund

Separate rating action commentaries on the funds are available at www.fitchratings.com.

As of end-February 2014 the funds' combined assets under management (AUM) was approximately ZAR133bn, equivalent to just over half of the total domestic AUM in the MMF sector in South Africa as of end-December 2013, according to statistics from the Association for Savings and South Africa (ASISA).

Total domestic AUM in the South African fund management industry continues to rise, reaching ZAR1.4trn in December 2013. MMFs account for around 20% of that total - a declining proportion of the total in relative terms, but broadly stable in cash terms. The MMF sector is evenly split between institutional and retail investment. As in other jurisdictions, corporate treasurers are major users of MMFs, as part of their cash management strategy.

To rate a fund, Fitch performs an assessment of the portfolio manager, which seeks to establish that the manager is suitably qualified, competent and capable of managing the portfolio. If the agency is not satisfied following this assessment, it will not rate the portfolio. The manager assessment has no bearing on the portfolio's rating; it simply determines whether Fitch can or cannot rate the portfolio. The press release for each fund complex details Fitch's views on the related asset manager. Fitch finds the capabilities of the managers of rated funds satisfactory.

Fitch monitors the rated funds continuously, based on a monthly review of portfolio holdings as well as summary statistics on the portfolio and investment activities.

The MMFs are constant net asset value (NAV) funds, therefore The funds are regulated by South Africa's Financial Services Board under the Collective Investment Schemes Control Act of 2002 (CISCA, specifically Notice 80 of 2012). Changes have been proposed to CISCA, including the introduction of a monthly mark-to-market process. The new regulations also pave the way for variable net asset value MMFs. All of the Fitch-rated MMFs in South Africa have a constant net asset value. Therefore the NFVRs are driven by the market risk exposure of the underlying portfolios, which may not necessarily be reflected in the funds' NAVs. The new regulatory proposals also envisage that all MMFs hold at least 4% of the portfolio in assets in liquid form. This falls below the level proposed by regulators in Europe (10%) and the requirement in Fitch's Global Money Market Fund Rating Criteria (published 13 January 2014) of 10%.

Some of the funds are also Regulation 28 compliant, making them eligible investments for South African pension schemes. Regulation 28 caps maximum issuer exposure at 25% whereas the maximum issuer exposure permitted under CISCA is 30%.

Fitch also affirmed the ratings of the following three funds, all of which incur greater credit and spread risk than the rated MMFs:

--Investec STeFI Plus Fund Fund: 'AA(zaf)'/'V2(zaf)'

--Nedgroup Investments Core Income Fund: 'AA-(zaf)'/ 'V2(zaf)'

--STANLIB Extra Income Fund: 'AA-(zaf)'/ 'V2(zaf)'

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