capital international group | capital liquidity managed account

CREDIT POLICY & RISKCAPITAL LIQUIDITY MANAGED ACCOUNTS

AAAf/S1+Credit Quality & Volatility Rating

Rated by Standard & Poor’s

CELEBRATING

Y E A R S I N B U S I N E S S

CapitalInternational Group

Our VisionThe Capital International Group exists to improve lifestyles through increased prosperity.

Our ValuesWe seek to achieve this through the enduring values of innovation, integrity and excellence.

Market volatility highlights the importance of using a liquidity account that is managed professionally

CapitalTreasury Services

Innovation Integrity Excellence

Investment in securities, for example, Floating Rate Notes or other non-cash based investments are not permitted within the CLMA investment portfolios. All cash securities purchased will have, subject to market conditions, the ability to be liquidated within five working days.

To undertake prudent investment of treasury pool in line with CLMA’s current Investment Policy after assessing credit risk and diversification.

To remain in accordance with the Standard & Poor’s (S&P) criteria for maintaining the AAAf/S1+ rating. The CLMA Investment Portfolio covers a range of sectors:

■ Banking ■ Corporation ■ Financial Services ■ Insurance ■ Sovereign Government ■ Supranational Organisation

Market volatility highlights the importance of using a liquidity account that is managed by a capable and highly experienced investment management team. Capital Treasury Services, a member of the Capital International Group, has successfully demonstrated both performance and safety through full interest rate and credit cycles, with their experienced portfolio managers and credit analysts collaborating to perform a thorough credit review process. We create an internal ‘approved list’ of suitable cash securities - this restricts the Capital Liquidity Managed Account (CLMA) to a limited proportion of cash-only instruments that have received appropriate ratings from the credit rating agencies.

The CLMA is increasingly being recognised as a safe, efficient and very competitive vehicle for investing cash, rated AAAf/S1+ by Standard & Poor’s the CLMA portfolios are managed within extremely tight investment guidelines governing diversification, duration, credit quality and the types of security for cash investment.

In summary, triple-A rated liquidity managed accounts, the CLMA in particular, offer security, liquidity and yield generally not possible with a bank deposit. We recognise cash as a distinct asset class - and, as such, it receives the same level of support, resources and dedication as any other major asset class, thus ensuring that your cash is expertly managed.

Capital Liquidity Managed AccountIntroduction

Investment Credit PolicyObjectives

We thoroughly analyse all our prospective investments by:

SecurityCash ‘security’ is determined by the creditworthiness of the issuer. The use of credit ratings will help to assess the relative creditworthiness. It is crucial to ensure the correct entity’s rating is assessed. Although cash is typically viewed as short-term overnight investment, the placing-out for fixed periods is usually for longer periods, any where from a few days to twelve months or more and so investors may like to build in their own assessment of suitability, although generally investors only rely on credit ratings when assessing counter-party risk and not the length of term.

LiquidityFixed-term cash investments are relatively liquid - although not always the best solution they can usually be accessed before maturity by breaking the term at a cost. Another way to ensure sufficient liquidity is to create a treasury pool of cash invested across a diverse range of providers and terms. The cash requirements of the CLMA will be met by monitoring and structuring the maturity profile of the investment portfolio.

Yield/IncomeThe return available from fixed term cash investments will depend on the credit risk assumed by the investor as well as the length of maturity. Investment returns are closely correlated to the risk profile of the underlying investments. Appropriate benchmark rates of return will be set in relation to the risk profile and returns will be required to meet or exceed the benchmark rates. Interest is paid regularly on a monthly basis.

Suitability Long-term cash investments are most useful in the following circumstances:

■ When cash sums are available to invest for longer than the immediate short-term

■ When investors are unlikely to need to access cash investments at short notice

■ To protect against fluctuating short-term interest rates

■ When CLMA is seeking an additional return on non-core cash

■ As part of a strategy of diversifying risk across a portfolio of investments


Capital Liquidity Managed AccountCriteria Assessment

Long-term cash investments are most useful against fluctuating short term interest rates


Standard & Poor’s Rating Agency is a professional organisation that provides analytical services. An S&P rating is an opinion of the general creditworthiness of an obligor with respect to particular debt security or other financial obligation – based on relevant risk factors.

Credit ratings are based, in varying degrees, on the following considerations:

■ Likelihood of payment

■ Nature and provisions of the obligation

■ Protection afforded by, and relative position of, the obligation in the event of bankruptcy, re-organisation or other laws affecting creditors’ rights

■ The likely income return and the timing of income return

■ The length of the term for the proposed investment

■ The liquidity of the proposed investment

■ The effect of the proposed investment in relation to the tax liability (if any)

■ The likelihood of inflation affecting the value of the proposed investment

■ The costs of making the proposed investment (commissions, fees, charges and duties payable)

The CLMA’s risk profile in relation to investing pooled funds is to be relatively prudent, conservative and risk averse. The profile will be achieved by effectively managing the diversity of the investments, and the creditworthiness of the investments within the investment portfolio. The risk is managed by placing limits on the maximum exposure the CLMA may have to individual Funds or Institutions and to the various credit rating categories.

In exercising the power of investment the CLMA Manager must consider the following:

Capital Liquidity Managed AccountCredit Ratings

Capital Liquidity Managed AccountRisk Profile

■ The purpose of the investment and the needs and circumstances

■ The desirability of diversifying the investment portfolio

■ The nature of and risk associated with existing investments

■ The need to maintain the real value of the capital and the income

■ The risk of capital and/or income loss or depreciation

■ The potential for capital appreciation


The CLMA utilises the credit assessments of a number of independent rating agencies. CLMA will use Standard & Poor’s long and short-term credit and fund ratings (or Moody’s or Fitch equivalent). The S&P ratings are broadly defined as follows:

Credit Rating Repayment CapacityAAA Extremely strong capacity to repayAA+, AA, AA- A very strong capacity to repayA+, A, A- A strong capacity to repayBBB+, BBB, BBB- Adequate protection and adequate capacity to repayBB+, BB, BB- Less vulnerable to nonpayment, however, adverse economic conditions

could lead to inadequate capacity to meet financial obligationsCCC Vulnerable to nonpayment and requires positive economic conditions to

meet its financial obligations

Note: Ratings below BBB- are defined by S&P as Speculative grade and this policy will only permit investment in institutions rated as Investment grade.

All credit ratings are monitored monthly by the CLMA Manager; being alerted to changes through the use of Bloomberg, and monitoring press clippings supplemented by daily notification from the Investment Management Team, and by reference to the Standard & Poor’s website at www.standardandpoors.com.

Capital Liquidity Managed AccountThe Use of Credit Ratings

CreditWatchHighlights an emerging situation, which may materially affect the profile of a rated corporation and can be designed as positive, developing or negative. Following a full review the rating may either be affirmed or changed in the direction indicated.

If a counter-party or investment scheme rating is down-graded with the result that it no longer meets the CLMA’s minimum criteria, the further use of that counter-party/investment scheme as a new investment will be withdrawn as soon as is practical.

If a counter-party is upgraded so that it fulfills the CLMA’s criteria, its inclusion will be considered and reported to the CLA Investment Sub-Committee.

Rating OutlookAssesses the potential direction of an issuer’s long-term debt rating over the immediate-to-long term. In determining a Rating Outlook, consideration is given to possible changes in the economic and/or fundamental business conditions. An outlook is not necessarily precursor of a ratings change or future CreditWatch action. A “Rating Outlook – Positive” indicates that rating may be raised. “Negative” means a rating may be lowered. “Stable” indicates that ratings are not likely to change. “Developing” means ratings may be raised or lowered.


Credit Ratings are based on the likelihood of payment, the nature & provisions of the obligation


* Where there is a change in the size of the overall portfolio which results in existing investments exceeding maximum investment thresholds, then no immediate forced sale will be required. Instead, a freeze is imposed on the acquisition of new investments in the relevant category until the portfolio can be effectively managed back to accordance with the requirements of the Policy. The portfolio must be managed back in accordance with the policy limits within one month from the date the portfolio first exceeds the threshold.

Investment Portfolio Parameters are risk management tools used to:

■ Avoid concentration of risk by diversifying the portfolio across a range of cash investments and institutions through setting maximum limits on holdings in each range.


Implied Credit RiskBy assessing the yield of the proposed investment in relation to its peers, it is possible to gauge the market’s perception of credit risk in real time.

Fundamental Analysis

We do not generate primary research at an issuer or security level, however, consideration is given a wide range of independent research and information sources.

Recent Events & DevelopmentsWe will note the timing of the latest credit assessments from the independent rating agencies and consider whether there have been any significant events or developments subsequently that could materially alter that assessment.

Capital Liquidity Managed AccountCredit Assessment

In addition to the credit ratings issued by third party rating agencies, we will consider its own assessment of the credit risk of individual issuers and securities. In making this assessment, we will consider:

Capital Liquidity Managed AccountInvestment Portfolio Parameters

■ Avoid concentration of credit risk by setting maximum limits for total amounts held in higher risk Credit Rating bands

The following limits apply to total investment portfolio:

Credit Rating Total Max % With a single distributionAAA category 100% 25%*AA category 80% 20%*A category 70% 15%*

Our ServiceClient Care

We take client care very seriously. We are proud to have some major international corporations as our key clients and we understand that client satisfaction is essential to our success. We have a comprehensive Client Care Programme to ensure we are delivering our clients the best service possible. Below is a summary of what it includes:

CommunicationWe listen, ask questions and challenge our clients so we understand their business, enabling us to develop pragmatic and intelligent solutions. We build collaborative relationships with our clients to deliver sustainable and innovative solutions to their business issues.

AdvocacyBy understanding our clients’ business issues and needs, we are able to act in their best interests whenever we deal with regulatory agencies or other third parties. We involve our clients in our processes, we ask for their opinion and we deliver the solution according to their requirements.

ResponsivenessOnce we have delivered a project, we follow up to make sure the client is completely satisfied that we have delivered a high level of quality throughout the project. We maintain flexibility to fit with our clients’ resource requirements.

ExcellenceWe focus on delivering the best result at a realistic price that reflects the value we have delivered to our clients. We offer a significantly diverse range of services meaning that we can offer our clients a complete solution to all their environmental and sustainability challenges.


The regulated activities are carried out on behalf of the Capital International Group by its licensed member companiesCapital International Limited and Capital Treasury Services Limited are both licensed by the Isle of Man Financial Services AuthorityCapital International Limited is a member of the London Stock ExchangeRegistered Address: Capital House, Circular Road, Douglas, Isle of Man, IM1 1AG

Isle of Man | Head OfficeCapital International GroupCapital HouseCircular RoadDouglasIsle of ManIM1 1AG

www.capital-iom.com

T : +44 (0) 1624 654200 F: +44 (0) 1624 654201 E: [email protected]

South Africa OfficeCapital International SAOffice NG101AGreat Westerford240 Main RoadRondebosch 7700South Africa

www.capital-sa.com

T : +27 (0) 21 201 1070 E: [email protected]

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AAAf/S1+Credit Quality & Volatility Rating

Rated by Standard & Poor’s

capital international group | capital liquidity managed account

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