London/Shanghai – Fitch Ratings has affirmed HSBC Global Money Fund-Hong Kong Dollar Fund at ‘AAAmmf’, which is managed by HSBC Global Asset Management (Hong Kong) Limited.
Key Rating Drivers
The ‘AAAmmf’ rating is driven by:
– The fund’s high credit quality
– Low exposure to interest-rate and spread risk
– High level of daily and weekly liquid assets
– Capabilities and resources of HSBC Global Asset Management as fund manager
– Stable investor base
Credit Risk
The fund has very high credit quality, consistent with Fitch’s Money Market Fund Rating Criteria at the ‘AAAmmf’ level. The fund invests in time deposits, certificates of deposit, commercial paper and short-term bonds and notes. All exposures and issuers have Short-Term Issuer Default Ratings of ‘F1’ or ‘F1+’. The fund’s portfolio credit factor – a risk-weighted measure of the credit quality and maturity profile of the portfolio’s securities – is always within the ‘AAAmmf’ range of 0.0-1.5.
Market Risk
The fund’s exposure to interest-rate and spread risk is low given its short maturity profile. The asset manager has internal guidance to keep weighted-average maturity (WAM) and weighted-average life below 60 days and 90 days, respectively; average WAM over the last 12 months was 44 days.
Liquidity Risk
The fund has internal guidance to maintain high levels of overnight (20%) and weekly (30%) liquidity. This satisfies the minimum 10% overnight and 30% weekly asset levels specified in Fitch’s rating criteria for ‘AAAmmf’.
Illiquid assets (mainly time deposits), as defined in Fitch’s criteria, have exceeded the maximum limit of 10% for ‘AAAmmf’ rated money market funds. Fitch regards exposure to longer-dated time deposits as a negative rating factor; however, this is mitigated by the structured liquidity ladder in the portfolio and the stability of the investor base. The majority of fund investors are from market segments that Fitch regards as stable.
Fitch defines an intrinsically stable investor base as one that demonstrates negligible day-to-day movement over prolonged periods or is characterised by investors, such as pension funds, with highly stable and predictable cash flow. Changes that materially increase the volatility of the investor base would increase the fund’s liquidity risk.
Investment Manager
Fitch views the investment manager as suitably qualified, competent and capable of managing the fund consistently with the rating, with sufficient operational resources and expertise.
HSBC Global Asset Management (Hong Kong) Limited is a 100% subsidiary of HSBC Holdings plc (A+/Stable) and forms a part of HSBC Global Asset Management, which is the asset management arm of HSBC group. It had USD507 billion assets under management at end-June 2019, of which USD81 billion were liquid.
Rating Sensitivities
Fitch considers the exposure to longer-dated time deposits as a key rating sensitivity. The rating would become increasingly sensitive to these exposures if the fund’s investor base became less concentrated in the stable investor market segment. Similarly, Fitch considers the rating as sensitive to a significant increase in the exposure to, or maturity of, such securities. Any meaningful deviation or change to the fund’s internal laddered investment policy would result in a review of the rating.
The rating may also be sensitive to material changes in the fund’s credit quality, market risk or liquidity profile. A material adverse and continued deviation from Fitch’s guidelines for any key rating drivers could cause the rating to be downgraded; see the criteria referenced below for information about Fitch’s money market fund ratings guidelines.
