OREANDA-NEWS. Fitch Ratings has assigned IIFIG Government Liquidity Fund a final Fund Credit Quality Rating of 'AAA' and final Fund Volatility Rating of 'V1'.

The rating actions follow the launch of the fund on 9 March 2016. As the fund has only recently been launched, its current portfolio composition is not yet reflective of its investment guidelines or final portfolio composition. Therefore Fitch will monitor the fund closely during the first few months of its existence as it transitions towards its eventual portfolio construction. Fitch has based its analysis on a conservative interpretation of the fund's investment guidelines and a model portfolio, as the fund has not as yet begun investing in any material way.

The fund is a sub-fund of LDI Solutions Plus plc, an Irish-domiciled qualifying investor alternative investment fund (QIAIF). The fund's investment manager is Insight Investment Funds Management Limited, which has sub-delegated this function to Insight Investment Management (Global) Limited (Insight).

KEY RATING DRIVERS
The main driver of the Fund Credit Quality Rating is the very high weighted average credit quality of the fund's portfolio of assets, factoring in both the quality of repo counterparties and repo collateral, consistent with the agency's approach to assessing counterparty risk.

The main driver of the Fund Volatility Rating is the fund's low exposure to interest rate risk and spread risk.

ASSET CREDIT QUALITY
The fund will have very high weighted average credit quality, consistent with a 'AAA' Fund Credit Quality Rating. The fund will invest primarily in repurchase agreements (repos) whereby it repos in assets in exchange for cash (out). In all cases the quality of the repo collateral will be high: the fund will only accept debt securities issued by the UK government as collateral. Repo counterparties can be banks rated 'A-' or higher or other, unrated, counterparties. In its rating criteria, Fitch looks to the credit quality of the counterparty and the collateral and when relevant margining policy, when assessing the overall credit quality of the portfolio.

While the fund may have exposure to unrated repo counterparties, Fitch considers the financial resources available to these entities sufficient to meet their obligations under the repo contracts. Should any of these counterparties fail in their obligations, the fund would remain the legal owner of the collateral. The repurchase agreements with all counterparties are governed by standard repo documentation.

PORTFOLIO SENSITIVITY TO MARKET RISK
The fund will have very low exposure to interest rate and spread risks. All exposures in the fund - whether they are direct instrument exposures or exposures to repo counterparties - will be short term. The maximum individual asset (or repo contract) maturity will be 397 days. Interest rate risk is managed within a maximum weighted average maturity (to interest rate reset date) limit of 60 days. Spread risk is managed through a weighted average life (to final maturity) limit of 120 days. However, the maturity of repo collateral can be considerably longer. The combination of maturity limits result in a market risk profile consistent with a 'V1' Fund Volatility Rating.

FUND PROFILE
The fund is a QIAIF. As such it falls outside of the UCITS regulations and is able to engage in term repo. It operates with a constant net asset value per share and its investment guidelines mean that it meets the European Securities and Markets Authority's (ESMA) definition of a short-term money market fund.

INVESTMENT ADVISOR
Fitch considers Insight to be suitably qualified, competent, and capable of managing the fund. Insight was established in 2002, and is one of 12 specialist asset managers owned by Bank of New York Mellon (AA-/Stable/F1+). Insight managed GBP400bn of assets as of end-December 2015, the majority of which was invested in fixed income.

RATING SENSITIVITIES
The ratings may be sensitive to material changes in the credit quality or market risk profile of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause the ratings to be downgraded. For additional information about Fitch's bond fund ratings guidelines, see the criteria referenced below, which can be found on Fitch's website.

APPLICABLE RATING CRITERIA
Fitch has chosen to rate the fund under its Global Bond Fund Rating Criteria. The fund meets the ESMA definition for a short-term money market fund. However, Fitch does not believe its Global Money Market Fund Rating Criteria is applicable to this fund.

Specifically, Fitch has identified material differences between this fund and other funds it rates under its Global Money Market Fund Rating Criteria which also meet the ESMA short-term money market fund definition. Above all, the fund engages in repo practices which Fitch would be unable to assess under its Global Money Market Fund Rating Criteria but is able to assess under its Global Bond Fund Rating Criteria.

Furthermore, unlike other money market funds the fund is not a UCITS fund and does not offer same-day settlement. Accordingly Fitch believes that its Global Bond Fund Rating Criteria are applicable and provide the most appropriate tools for assessing the risks in this fund.