Ratings of financial instruments that are designed for fund investments
Fund ratings assess how likely it is that the capital which has been invested in the fund will be redeemed and duly serviced (whether all interest payments will be made) over the investment period. Fund ratings pay specific attention to the underlying assets and their quality. Creditreform Rating has a successful track record in performing ratings for funds that invest in the following asset classes:
- Real estate / property
- Corporate loans
- Renewable energies
Fund ratings are predominantly conducted in combination with ratings of institutional investors debt. Creditreform Rating uses a so-called “look through approach“ for its rating process, drilling down the data hierarchy to the underlying components of the fund on the the lowest structural level. Creditreform Rating believes that only such a complete “look-through“ allows a reliable assessment of a fund.
Fund rating analyses
Fund ratings comprise a quantitative analysis and an analysis of qualitative features. For the purposes of compiling the quantitative analysis, we use a quantitative risk assessment to build a cash flow model which is then subjected to certain stress factors by changing various parameters. The scenarios are designed to establish how the cash flow would react to different levels of stress and to what extent any such change would affect the fund’s ability of meeting its financial obligations. Fund ratings are essentially designed to provide an answer to the question of whether and to what extent the fund would still be able to service and eventually redeem the investment capital under deteriorating conditions.
One of the key factors of the qualitative analysis is the track record of the investment manager. We establish whether or not the investment manager has experience in the fund’s target asset class – this, we believe, is an important aspect – and what conclusions may be drawn on the basis of available data about similar projects and their development. Qualitative factors including the track record can serve to validate assumptions that have been formed about the possible future development of the fund.
Underlying funds are often assessed in the context of a rating for institutional investor debts.