NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded Alpine Municipal Money Market Fund, a tax-exempt money market fund sponsored by Alpine Woods Capital Advisors LLC, to 'AAmmf' from 'AAAmmf.' Fitch notes that the fund's current portfolio is consistent with Fitch's 'AAAmmf' guidelines, and there are no immediate credit or liquidity concerns with respect to the fund.
The downgrade reflects Fitch's view that, over the longer-term, the fund's investment and risk mitigation strategy, coupled with its sponsor's limited resources (relative to other sponsors of 'AAAmmf' rated funds) are more consistent with an 'AAmmf' rating. Money market funds rated 'AAmmf' denote very strong capacity to achieve money market fund's investment objective of preserving principal and providing shareholder liquidity through limiting credit, market, and liquidity risk. Fitch's rating action affects $496.3 million of money invested in the fund as of Jan. 20, 2011.
The 'AAmmf' rating reflects increased concern over the longer-term with respect to the fund's investment and risk mitigation strategies. Specifically, the fund has shown a greater risk appetite for financial institutions viewed as weaker Tier 1 counterparties, including those on Rating Watch Negative or otherwise perceived by the market as higher risk. Recent examples include SunTrust Bank and Allied Irish Banks, plc. While the fund did eliminate these exposures once they were lowered to 'F2', the fund has been less proactive in eliminating such exposures in contrast with other 'AAAmmf' rated funds.
Additionally, the fund sponsor/advisor, while experienced in the tax-exempt space, has limited financial resources relative to other sponsors of 'AAAmmf' rated funds, which typically are banks and large publicly traded asset managers. As such, the sponsor's financial resources are viewed as inconsistent with an 'AAAmmf' rating, particularly in times of fund-specific or industry-wide stress.
Finally, Fitch notes that the fund has consistently delivered above-market yields relative to other tax-exempt money market funds. While Fitch acknowledges that the fund's size may allow it to invest in certain higher-yielding, smaller lot-size deals, Fitch believes that consistent outperformance may also partially be explained by the higher degree of risk undertaken by the manager.
Per its investment prospectus, the fund invests at least 80% of its portfolio in direct and indirect municipal obligations, the income of which is exempt from federal income tax other than the federal alternative minimum tax. These securities are high-quality, short-term debt obligations issued by states, territories and possessions of the U.S. and the District of Columbia and their political subdivisions, agencies and instrumentalities. As of Jan. 20, 2011, the fund held approximately 93% of its portfolio in municipal variable rate demand notes, 4% in tax-exempt money market funds and 3% in direct short-term municipal bonds.
Consistent with Fitch's 'AAmmf' rating criteria, the fund seeks to maintain a high credit quality portfolio by investing exclusively in securities rated at least 'F1' by Fitch or of comparable credit quality by other global credit rating agencies or of comparable long-term credit quality of either. In line with the same criteria, the fund generally limits its exposure to single municipal credit/liquidity providers to 10% of the portfolio. Although the fund on occasion has exceeded Fitch's 10% guideline, it has been temporary in nature and appears to be driven by short-term redemption activity.
The fund seeks to limit interest rate and spread risk by limiting weighted-average maturity to reset date (WAMr) and weighted-average final maturity (WAMf) to 60 days and 120 days, respectively, within Fitch's 'AAmmf' rating criteria. As of Jan. 20, 2011, the fund's WAMr was 8.6 days, and the fund's WAMf was 9.2 days, reflecting the short-term investment profile of the portfolio.
Additional fund investment restrictions are aimed at maintaining sufficient levels of daily and weekly liquidity to meet investors' redemption requests. In addition to overnight liquidity in the form of investments in other money market funds and overnight variable rate demand notes, the fund's seven-day liquidity position is consistent with Fitch's 'AAmmf' rating criteria.
Alpine Woods Capital Investors LLC, the fund's investment advisor, is located in Purchase, NY. Alpine Woods Capital Investors LLC was founded in 1998 by Stephen and Samuel Lieber. As of Dec. 31, 2010, Alpine Woods Capital Investors, LLC had approximately $6.3 billion in assets under management in its 14 open-end mutual funds, three closed-end funds, three hedge funds and a number of separately managed accounts.
The rating may be sensitive to material changes in the credit quality or market risk profiles of the funds. A material adverse deviation from Fitch's guidelines for any key rating driver could cause the rating to be lowered by Fitch. Alternatively, a material migration to a more conservative investment and risk mitigation strategy coupled with the fund sponsor demonstrating sufficient financial resources may cause the rating to be raised by Fitch.
In downgrading to the 'AAmmf' rating, Fitch has incorporated a moderate but manageable redemption stress associated with investors' potential reaction. In reviewing the fund portfolio as of Jan. 20, 2011, Fitch notes that the fund maintained a highly liquid profile with 23.7% of assets invested in overnight maturities and 97.2% invested in seven day maturities. Fitch views the fund's liquidity as sufficient at this time. However, should redemptions pressure available liquidity this may cause an immediate review of the rating. For additional information about Fitch's money market fund ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website.
Up-to-date surveillance and analytical information on the funds are available in the Funds Surveillance section of Fitch's website.
Additional information is available at www.fitchratings.com.
The sources of information used to assess this rating were the public domain, Alpine and State Street.
Applicable Criteria and Related Research:
--'Global Money Market Fund Rating Criteria', dated 5 Oct. 2009.
Applicable Criteria and Related Research:
Global Money Market Fund Rating Criteria