Opportunity within fast growing and diverse economies
Having witnessed an unrivalled transformation and expansion over the last decade, we believe Asian Fixed Income markets are set to become the economic engine of the world.
Investors have the opportunity to benefit from this increasingly diversified asset class, with ample liquidity and volatility akin to that of developed markets.
A proven and differentiated investment philosophy:
We consider risk management as key to our philosophy, and one that permeates every stage of our investment process. We follow a prudent investment approach focused on consistent income generation, to achieve superior risk-adjusted returns. Country selection reflects the output of our Asian markets assessment which includes quantitative and qualitative analysis. Duration and yield curve management reflect our thematic, factor based approach.
Consistent long-term performance track record:
Positive risk-adjusted returns generated over 3-5 year time horizons.
World-class ESG integration:
We have a vigorous Environmental, Social and Governance (ESG) process that is built in at both the company and product level. More importantly, ESG risk factors are an important consideration in the assignment of credit ratings on individual issuers.
Multi-dimensional credit research:
Credit research focuses on assessing credit risk and identifying deteriorating issuers. Our analysis considers a variety of risk dimensions, enabling significant breadth.
All positions in our portfolio are backed by research
We are stewards of our clients’ capital, and we take that very seriously.
We believe that successful fixed income investing requires a deep focus on risk management, given the inherently asymmetric nature of the investments. For this reason every position in the portfolio is backed by in-depth research. Identifying rating migration and defaults is as important as finding relative value opportunities.
PK Founder Group – steering clear of a default
China-based diversified conglomerate PK Founder Group operates across IT, healthcare and pharmaceuticals, bulk commodities trading, education and training.
PK Founder Group did not have an external rating by international rating agencies, which is quite common among domestic companies in China. When the issuer first came to the international bond market in 2017 unrated, we assigned an ‘investment grade’ rating, with a view that there would be a high probability of support from the Government of China, despite the company’s relatively weak standalone financials. The bond issue was also attractively valued relative to other state-owned Chinese university issuers at the time.
After several interactions with the management, we concluded that the USD bond proceeds were being pledged against the company’s onshore borrowing facilities. This alarmed us as management was not transparent with regards to the structural subordination for offshore investors. The group quickly became a commercialised conglomerate, expanding into non-strategic mandates such as property. In our view, this severely weakened the likelihood of future government support.
The group’s total debt surged by >USD20 billion by end-FY18, (+31% year-on-year increase), and five additional USD bonds (totalling US$1 billion) were issued during the first six months of 2019. Concern were raised after meeting with management, and analysing the latest financials. Positions in our credit portfolios were trimmed and subsequently sold completely. The internal credit rating was subsequently downgraded into the ‘high yield’ category. Following the disposal, the bonds depreciated sharply. In December 2019, the group missed a bond repayment. This ‘default’ resulted in a very sharp deterioration in the value of the bonds.
Options and Opportunity
Offering our clients diversification within their portfolios:
- To existing Fixed Income exposure
- To Sovereign Emerging Markets exposure
- To Investment Grade developed market exposure
Offering our clients the potential for a stable income stream
Giving clients exposure to corporate credit companies, driving global economic growth
Our corporate RI strategy is based upon three strategic pillars of quality, stewardship and engagement.
Our approach to investing is driven by a commitment to providing the best possible outcomes over the long term for our clients. The team considers ESG factors relative to their potential impact on financial performance. We believe that ESG issues have a significant bearing on risk.