GCR Assigns AIICO Money Market Fund a National Scale Fund Rating of A+(NG)(f); Outlook Stable

10 Jul 2018 In Rating Notifications

GCR Assigns AIICO Money Market Fund a National Scale Fund Rating of A+(NG)(f); Outlook Stable

Lagos, 10 July 2018—Global Credit Ratings has accorded AIICO Money Market Fund first time, national scale fund* rating of A+(NG)(f); with the outlook accorded as Stable. The rating is valid until April 2019.


RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above fund (“f”) rating to AIICO Money Market Fund (“AMMF)”) based on the following key criteria:

AMMF is an actively managed open-ended fund that invests mainly in quality money market instruments (short term government securities, certificates of deposits, commercial papers or other highly liquid and low risk securities).

AIICO Capital Limited (“AIICO Capital” or “the manager”) has a relatively short operational history of less than five years. As a subsidiary of AIICO Insurance Plc, it relies on the parent for provision of some back-office services (internal audit, legal, and information technology) by way of shared services, with the core asset management functions maintained at the company level. Staffing level across the various functions is considered satisfactory based on the manager’s business model and current scale of operations. AIICO Capital was recently accorded a management quality rating of BBB+(NG)(mq) by GCR.

The investment pool is of good quality, dominated by risk-free Treasury bills at 70.9%. The fund’s vulnerability to credit risk via Commercial Paper investments representing 29.1% of total portfolio securities at the fund’s review date, is somewhat mitigated by the quality of obligors (having GCR’s ‘A’ band ratings). Notwithstanding this, the accorded rating reflects the volatility in the portfolio quality, given the wide investment mandate stipulated in the Trust Deed, which allows for investment of up to 75% of the fund in any money market instruments having an investment grade rating. An analysis of the funds’ investments in the three year period to FY17 showed fluctuations in the average rating of the investment securities. Despite the fairly wide investor base, made up of 485 active unitholders as at FY17, the unitholder book reflected high concentration by stake per subscriber (with the largest and ten largest unitholders accounting for 61.3% and 81.6% of total subscription at FY17. However, risk to fund’s instability appears low as the parent and the sponsor owned 61.3% and 13.6% of the fund respectively (collectively 74.9%).

AMMF has displayed good performance track record since inception, recording an unaudited pre-tax profit of N82.7m for FY17 (a notable 8.6% growth over FY16). Distributions are made quarterly, with total distributions amounting to N61.2m in FY16 while N122.3m has been paid in FY17, according to the manager.

The fund is highly sensitive to interest rates, as such, falling interest rate would impact negatively on returns.

Positive rating action could be triggered by a satisfactory performance track record, positive developments in the operating environment, as well as a positive rating action on the manager. A negative rating action would result from decline in performance, a significant increase in risk asset pool, a negative development in the operating environment that could adversely affect the fund’s performance.

*Note that 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 GCR’s published rating scales and definitions).

NATIONAL SCALE RATINGS HISTORY

Initial/last rating (May 2018)
Fund rating: A+(NG)(f)
Outlook: Stable                            
                                                       
ANALYTICAL CONTACTS
Primary Analyst                                            
Julius Adekeye                                          
+23 41 904-9462-3                                        
.(JavaScript must be enabled to view this email address)                     


Committee Chairman
Dave King
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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

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK:  HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.COM.NG.

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 credit rating document.

The rating was solicited by, or on behalf of AIICO Money Market Fund, and therefore, GCR has been compensated for the provision of the rating.

AIICO Money Market Fund and AIICO Capital 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 rating above was disclosed to AIICO Money Market Fund and AIICO Capital Limited with no contestation of/changes to the rating.

The information received from AIICO Money Market Fund and other reliable third parties to accord the rating included the audited financial statements for the two years to 31 December 2016, the unaudited financial statements for the year ended 31 December 2017, as well as other relevant legal and operational policies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALE-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

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