credit ratings services bill
DESCRIPTION
Credit Ratings Services Bill. May 2012. Agenda. Introduction to Futuregrowth Background Summary of key points Registration of Credit Ratings Agencies (“CRA’s”) Key Individual Accountability Hiring/firing of CRA’s Conclusion. 2. Introduction to Futuregrowth. Futuregrowth shareholding. - PowerPoint PPT PresentationTRANSCRIPT
Credit Ratings Services BillMay 2012
Agenda
l Introduction to Futuregrowth
l Background
l Summary of key points
‐ Registration of Credit Ratings Agencies (“CRA’s”)
‐ Key Individual Accountability
‐ Hiring/firing of CRA’s
l Conclusion
2
3
Introduction to Futuregrowth
OMES & Trust
Black shareholding
18.2%74.7%
25.3%Black
shareholding7.6%
4
Futuregrowth shareholding
What are our specialist areas?
| Core Money Market| Enhanced Money Market| Flexible Income| Inflation Linked Bonds| Passive Bonds| Core Bonds| Yield Enhanced Bonds| Interest Rate Asset Allocation| Aggressive Fixed Interest
FUTUREGROWTH PRODUCTS & SERVICES
SPECIALISTFIXED
INCOME
SRI PRODUCT SUITE
| Infrastructure & Development Bond | Community Property| Development Equity | SRI Balanced | SA Agri-Fund Equity| SA Agri-Fund Debt
| As at 30 April 2012 approx. AUM R111.4 billion in assets
| Currently SRI Funds of R10.7 billion
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| 46 staff members
Assets under management
R billion
Infrastructure and Development Bond 5.4
Community Property 4.2
Development Equity 0.9
Agri-Fund 0.2
Money Market 22.0
Yield Enhanced Money Market 24.6
Yield Enhanced Bond Fund 5.1
Active Bonds 23.3
Passive Bonds 1.1
CPI Linked 4.6
Income Funds 3.1
Enhanced Income Fund 3.4
Interest Rate Asset Allocation 0.1
Money Market/Inflation Linked 10.8
Money Market/Core Bonds 2.6
Total 111.4
Bond Mandates
Balanced Mandates
SRI Mandates
Money MarketMandates
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As at 30 April 2012
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Background
All debt is not created equal…
SeniorUnsecured
Subordinated
Hybrid/ Prefs
Equity
Senior Secured
Senior UnsecuredMaturity date:
December 2010
Senior UnsecuredMaturity date:
June 2011
Access to
cash flow
& assets
Bonds get
Paid first
…but debt is fragmented,
conflicted and non-standard
A share is a share is a share…
Bank loans have less defaults
and higher recovery rates
8
Credit is not going away SA is under-geared…
Average debt: equity of U.S. non-financial companies
9
2010 Median: 109%
SA average gearing
Source: RMB
1m
Debt is about fear... Equity is about hope
...fear of repayment... fear of inflation
60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 00060 000 60 000 60 000 60 000 60 000 60 000 60 000 60 00060 000
60 000
60 000
60 000
60 000
60 000
60 000
60 000
-1m“a bundle of cash flows” 4 year, 12% (paid semi-annually) coupon bond
| Bonds are used to match long-term liabilities... | but “Bond” & “Credit” now conflated.| The best we can do is get the money back
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Bonds in retirement funds
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Summary of Futuregrowth Response
Consultants/Advisors/Auditors/Lawyers/Actuaries/etc
Fund Trustees
Multi-Managers
Investors/ClientsRegulators
Asset Managers
Individuals
Banks/Merchant BanksBanks/Merchant BanksBrokers/DealersBrokers/DealersIssuers/Project Sponsors
Fiduciaries
Not
Companies
Credit Rating Agents
The Fiduciary Chain & Credit Ratings Agents
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Credit Ratings Services Bill
l “Exemption of applicant whose holding company is registered/approved by foreign regulatory authority from providing some or all of the information ....”
l South African implication - 3 out of 4 could be exempt?
l Investor concerns:
‐ Duty of care and accountability to local investors
‐ High degree of transparency and comparability needed
‐ Local jurisdiction and regulation (purpose of Bill!)
Para 5(3) – Registration exemption
Credit Ratings Services Bill
l Include provisions requiring Key Individual accountability
‐ Includes MD/CEO and analyst
‐ Similar to those required in Asset Management industry
l Promotes accountability and transparency
l Fiduciary role
Key Individual Accountability
Credit Ratings Services Bill
l CRA primary role: perform analysis for 3rd party lenders
l Gatekeeper for issuers to access public capital...
l ... but not fiduciaries & not accountable
Lenders ability to replace CRA
Credit Ratings Services Bill
l Proposals:
‐ Issuer’s Audit Committee approves hiring/firing/replacement of CRA
‐ Majority lender vote needed to replace a CRA
l Implications:
‐ Makes CRA’s more responsive to investor’s concerns
‐ Improves accountability to investors
‐ Includes a layer of governance between issuer management and CRA
‐ Improves CRA’s fiduciary role
Lenders ability to replace CRA
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Conclusion
Conclusion
l Improve CRA fiduciary role
l Improves transparency and accountability
l Improves SA capital markets
Chief Investment Officer (20yrs exp) B Sc, CFATel: 021 659 5427E-mail: [email protected]
Credit Team
Credit Process Manager (11yrs exp)B Bus Sci (Hons), PGDA, CA (SA) Tel: 021 659 5428E-mail: [email protected]
Portfolio Manager (14yrs exp)B A, B Comm. (Hons)Tel: 021 659 5462E-mail: [email protected]
Olga ConstantatosAndrew Canter Jason Lightfoot
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Portfolio Manager (9yrs exp)M Bus Sci (Economics)Tel: 021 659 5421E-mail: [email protected]
Mei-Chi Liou Paul Semple Hema Natha
Credit Analyst (13yrs exp)B Com, CAIBTel: 021 659 5424E-mail: [email protected]
Credit Analyst (3yrs exp)B Com, PGDA, CATel: 021 659 5415 E-mail: [email protected]