OREANDA-NEWS. Fitch Ratings has assigned IIFIG Government Liquidity Fund expected Fund Credit Quality Rating of 'AAA(EXP)' and Fund Volatility Rating of 'V1(EXP)'.

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).

The main driver for the Fund Credit Quality Rating is the expected 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 drivers for the Fund Volatility Rating are the fund's likely low exposure to interest rate risk and spread risk.

The expected ratings reflect that the fund has not yet been formally launched. Accordingly Fitch has based the expected ratings on a conservative interpretation of the fund's investment guidelines and a model portfolio. Fitch will assign the final ratings when the fund formally launches and begins investing, which the agency understands from the fund will happen within a short timeframe.

The fund's expected weighted average credit quality is very high and 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 credit quality of 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.

The fund will have very low exposure to interest rate and spread risks. All exposures in the fund - be they 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 (WAM, to interest rate reset date) limit of 60 days. Spread risk is managed through a weighted average life (WAL, to final maturity) limit of 120 days. The maturity of repo collateral can, however, be considerably longer. The combination of maturity limits result in a market risk profile consistent with a 'V1' Fund Volatility Rating.

The fund is a QIAIF. As such it falls outside of the UCITS regulations and accordingly 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.

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-/Outlook Stable/F1+). Insight managed GBP400bn of assets as of end-September 2015, including approximately GBP168bn in fixed income and money markets.

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 bond fund ratings guidelines, see the criteria referenced below, which can be found on Fitch's website. If the fund has not launched within six months of assigning the rating Fitch will assess the case for maintaining the expected rating or withdrawing it.

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.