A key value of such surveillance for investors is the independent, on-going and consistent risk analysis it provides across all funds through Fitch's criteria for assessing a fund's risk. This was shown in a recent investor survey, where 46% of short-term investors cited oversight of investment managers and fund surveillance as the most important factor they value in Fitch's MMF ratings.

The rating analysis and surveillance is conducted through a consistent spectrum based on portfolio holdings data received from fund administrators and/or custodians, complemented in some instances with reports from asset managers' operational teams. It provides an additional and independent layer of risk analysis and portfolio monitoring, which feeds into regular publications informing investors on trends and considerations for MMFs.

Fitch standardises portfolio holdings data received and has a homogeneous way of looking at classifications, issuers, credit quality and instruments types, including on their potential callable, putable, collateralised or guaranteed features.

On that basis, portfolio credit, market and liquidity features are assessed in a consistent manner, typically on a weekly timeframe. This is performed though Fitch's surveillance tools and analysed relative to criteria applicable for the assigned rating.

Identified deviations from criteria are discussed with fund managers to understand the cause and the intended remedy. A reasonable cure period may be allowed to remedy temporary deviations and avoid unnecessary forced selling if it is in the best interest of investors. Conversely, sustained, material, adverse deviations would lead to the rating being placed on Rating Watch Negative or downgraded, absent remedial actions.

Regular 'peer reviews' of funds pursuing similar strategies promote a consistent analytical approach, adequate follow up and resolution of deviations, and a forum for analysts to discuss surveillance issues. Fitch reviews MMF exposures across sectors, countries, rating buckets, maturity segments and issuers to understand trends and sensitivities at the fund level and for the MMF sector. Deterministic scenario testing complements the process and highlights funds' direct and indirect sensitivity to certain risks, primarily credit related.

Fund manager reviews are conducted on a regular cycle, typically annual, and Fitch regularly monitors developments relating to the asset manager and the fund management team. The managers' capabilities and resources are an important consideration beyond simply looking at portfolio attributes.

fitchratings.com

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