Fitch Ratings published an updated version of its "Money Market Fund Rating Criteria," revised to reflect recent changes in their short-term securities ratings metrics. They explain, "This report presents Fitch Ratings' criteria for assigning Money Market Fund (MMF) ratings to regulated money market funds and other liquidity/cash management products. These ratings are denoted with an 'mmf' subscript to provide clear differentiation from credit ratings assigned to debt instruments. The criteria apply to new and existing ratings, and focus on the key rating considerations in assessing an MMF's capacity to meet its investment objective of preserving principal and providing liquidity."
Analysts Greg Fayvilevich, Alastair Sewell and Li Huang write, "The criteria are applicable to constant net asset value (NAV), variable/floating NAV, and European low-volatility NAV (LVNAV) funds as the focus is on a manager's ability to avoid losses through limiting credit, market and liquidity risk rather than on the particular accounting convention used to calculate NAV. The criteria are also applicable to other liquidity/cash management products such as separately managed accounts, private funds, or other similar vehicles that have comparable investment objectives and operating frameworks to MMFs.... This includes European short-term MMFs, but not European 'Standard' MMFs."
They explain, "This report focuses mainly on prime MMFs that primarily invest in short-term debt instruments issued by financial and non-financial corporations and structured finance entities. The appendices to this report describe the criteria for government and municipal MMFs, as well as National Ratings assigned to certain locally regulated funds denominated in the local currency."
Fitch says of its "Key Ratings Drivers," "These rating criteria are principles-based, focusing on an MMF's overall risk profile and its key risks -- credit, liquidity and market risk. The thresholds outlined in the report for these risks can be adjusted for qualitative considerations, such as the manager's resources and track record and the investor base profile, among others."
They comment, "Fitch analyses credit risk from two perspectives. First, Fitch seeks to understand the manager's credit-selection capabilities and ability to avoid credit events and limit credit driven losses. Second, Fitch analyses the portfolio's key credit attributes including the short-term ratings assigned to portfolio investments, unsecured versus secured exposures, the level of diversification, and counterparty risk."
The Criteria explains, "Liquidity risk is a function of the quality and maturity profile of the assets, as well as the stability and predictability of the investor base, particularly in times of stress. Fitch considers an intrinsically stable or captive investor base a critical countervailing factor in its assessment of a fund’s liquidity needs.... The primary metrics Fitch uses to gauge interest rate and spread risk, respectively, are weighted average maturity (WAM) and weighted average life (WAL)."
Also, they tell us, "The asset manager's capabilities, investment platform and infrastructure are important factors in the rating analysis. The asset manager (with board-level oversight, where applicable) has responsibility for achieving the investment objectives, maintaining internal controls, and providing the necessary operational support."
Finally, Fitch states, "MMF ratings seek to measure an MMF's ability to provide principal preservation and liquidity through limiting credit, market, and liquidity risks. The principles applied in the risk assessment are selected to be applicable to a wide range of liquidity products that have comparable investment objectives and operating frameworks to MMFs. For example, a cash management-focused separately managed account is likely to have different liquidity requirements from a commingled regulated MMF, while a fund investing solely in US treasury securities is primarily exposed to interest-rate risk. Fitch considers the characteristics of European 'Standard' MMFs akin to those of short-term bond funds and, therefore, rates them under the Global Bond Fund Rating Criteria."
In other news, a press release entitled, "TreasuryXpress and FXD Capital Partner to Help Reduce Idle Cash for Corporates," tells us, "TreasuryXpress, the global leader in on-demand treasury management solutions (TMS) today announced its partnership with FXD Capital, an innovative money broker and deposit specialist. The partnership aims to empower corporate treasurers and finance directors to achieve comprehensive cash visibility and improve the way they manage their idle cash."
Bobby Jackson, Managing Director and Co-Founder of FXD says, "There's some degree of inertia for CFOs and treasurers to make their idle cash work harder.... Many have seen this as a time-consuming and futile task given the historically low rates environment. We broker deposits to generate better returns from their cash, in a way that reduces counterparty risk and ensures sufficient accessibility of funds in line with their cash requirements. TreasuryXpress provides the insight and tools treasurers need to gain a comprehensive view of their liquidity and cash."
The release explains, "FXD provides services that help corporates enhance liquidity, diversify counterparty risk and maximise yield, through a wide range of Term Deposits, Notice Accounts, and MMFs. Through this joint offering, clients of TreasuryXpress will now be able to leverage FXD's expertise in providing a proactive deposit rate aggregation solution."
Tom Leitch, COO of TreasuryXpress, adds, "Through our on-demand TMS, we enable treasurers to analyse their entire cashflow and position, identifying better opportunities to put their cash to work, by leveraging FXD to identify better rates and match our clients with complementary counterparties, we make it easier for clients to achieve a better return on their cash."
