Update on Perpetual's Cash Management Fund
28 November 2008
In October, the Federal Government announced deposit and wholesale funding guarantee arrangements for authorised deposit-taking institutions (ADIs) in Australia.
The Government guarantees are designed to promote financial system stability and ensure the continued flow of credit throughout the economy at a time of heightened turbulence in international capital markets.
Security
Perpetual's Cash Management Fund is rated AAAm by Standard & Poor's which is the highest rating available to such products. It has provided secure and competitive returns to Australians for decades. We will continue to manage the fund to the AAAm criteria and in the best interests of its investors.
Over 98% of the fund is invested in securities and deposits of banks and ADIs that are eligible for the recent government guarantee. We will continue to move to a position where 100% of the Fund's assets are invested in instruments eligible for the government guarantee. We are taking this action so that unitholders in Perpetual’s Cash Management Fund can feel assured that the Federal Government’s support for the financial system underpins their investments.
The Federal Government guarantee was uncapped and free until 28 November 2008. From this date deposits over $1million and wholesale funding are only guaranteed if a fee of between 0.70% and 1.50% per annum is paid by the eligible institution and then generally passed onto investors.
Given the short term nature of the securities and the quality of the banks the Fund is invested in, we do not intend to incur the cost of investing in guaranteed securities as a matter of course. Rather we will purchase guaranteed securities selectively, on a case by case basis, where we view this is in the interests of investors. This approach will ensure that returns to investors are not unnecessarily compromised.
Liquidity
The Perpetual Cash Management Fund is also an extremely liquid vehicle that invests only in highly rated securities with short dated maturities. It is designed to provide investors with access to their funds in all conditions, and the current market is no exception. We do not believe that this fund is subject to any risk of suspending redemptions. The industry is actively engaging with the Government to identify an appropriate long-term position that gives certainty to investors and appropriately reflects the security of AAAm rated cash management funds like Perpetual's.
AAAm Rating
A AAAm fund provides extremely strong capacity to maintain principal stability and to limit exposure to principal losses due to credit, market, and/or liquidity risks. Funds achieving the AAAm Principal Stability Fund Rating have to satisfy robust criteria:
- underlying investments must have the highest ratings from Standard & Poor’s (minimum 75% short-term rating of ‘A-1+’ and the remainder ‘A-1’)
- the fund must have a very low sensitivity to interest-rate risks with a weighted average maturity limited to a maximum of 70 days
- detailed information on the fund’s holdings must be submitted every week to Standard & Poor’s dedicated surveillance analysts.
