Docusign Envelope ID: 7C07248F-983B-4F8B-904D-FCB9B680B5CE
THE UTC COMMON INVESTMENT FUND
NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2023
Analysis of direct credit risk as at 31 December 2023
Non- investment grade
Cash, other and unrated
Investment grade
2023 Value
2022 Value
1,172,762
Bonds
1,167,140
1,874
3,748
1,145,443
Derivatives - net
2,679
-
-
2,679
(1,675)
Cash
971
-
-
971
3,681
464,673
PIVs
-
-
464,673
482,870
1,641,085
1,167,140
1,874
472,071
1,630,319
Investment grade bonds are those with particular ratings specified by credit rating agencies and/or investment managers. For instance, the credit ratings agency S&P consider investment grade bonds to be those with rating of BBB- and higher. Investment grade bonds are expected to have a lower risk of default than non-investment grade bonds, although some non-investment grade bonds may be classified as such because they do not have a specific rating attributed to them by a credit rating agency. The credit risk arising on bonds is mitigated by predominantly investing in government bonds and corporate bonds which are at least investment grade credit rated. The CIF also invests in high yield bonds, which are non-investment grade. The associated credit risk is mitigated by placing restrictions on the assets that may be held within the bond portfolio. Credit risk arising on derivatives depends on whether the derivative is exchange traded or over the counter (OTC). The CIF holds both exchange traded and OTC derivatives. OTC derivative contracts are not guaranteed by any regulated exchange and therefore the CIF is subject to risk of failure of the counterparty. The risk is reduced through collateral arrangements.
Cash is held within financial institutions which are at least investment grade credit rated.
Direct credit risk arising from pooled investment vehicles is mitigated by the underlying assets of the pooled arrangements being ring-fenced from the pooled manager, the regulatory environments in which the pooled managers operate and the ongoing due diligence of the pooled manager.
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