Fixed Income Overview

We are a global fixed income investment manager operating with the strength of local “on-the-ground” teams, who systematically share views and investment ideas to benefit our diverse clients’ needs.

We believe individuals and teams are best placed to meet their potential by working collaboratively, particularly in today’s interlinked and fast-paced global financial markets. Therefore, we seek to systematically communicate and engage with one another to maximise value add for our clients.

Capability Overview

"Our common purpose is to consistently deliver on investment objectives, capture the best global investment opportunities, and exceed the service expectations of our clients."

 

We are a global fixed income investment manager operating with the strength of local “on-the-ground” teams who systematically share views and investment ideas to benefit our diverse clients’ needs. Our various investment teams operate independent investment processes and there is no “house view” that dictates overall strategy or positioning across portfolios.

Our common purpose is to consistently deliver on investment objectives, capture the best global investment opportunities, and exceed the service expectations of our clients.

  • Independent teams with local and global reach, connected by a common purpose.
  • Research-backed investment philosophy allows us to attain strong risk adjusted returns as fundamental factors prevail over time.
  • Collaboration facilitated through 'ION'.
  • Global credit research team supports the investment teams where analysts identify ESG risks during their bottom-up credit research process.
  • A team of 53, with an average 17 years’ of industry experience and five years with the firm.

Investment Approach

Although the various investment teams within Fixed Income utilise distinct and independent investment processes, we are united by a shared culture. We believe this shared culture directly benefits our clients through:

 

  1. Local knowledge, global reach: Our clients can benefit from locally-generated alpha sources in our global portfolios.
  2. Research-based investment decisions: Unlike a short-term trading based model, our research-backed investment philosophy allows us to attain strong risk adjusted returns as fundamental factors prevail over time.
  3. Collaboration facilitated through 'ION': Allows us to consistently organise, store and communicate investment ideas across the team to enhance portfolio design.
  4. Capturing the ‘trend through the noise’: Effective risk management allows nimble movement across a variety of market conditions – we try to capture long-term structural shifts and secular movements, but do not ignore short term or technical factors.
  5. Transparency and product integrity: We “do what we say” fostering a mutually beneficial relationship based on trust. Transparency and quality control ensures full accountability for results.
  6. Commitment to Responsible Investment: We see responsible investment as an essential component of long-term investing and fully embed RI and ESG considerations into the core of our investment activities globally to promote the long-term interests of our clients.

"We do what we say, fostering a mutually beneficial relationship based on trust. Transparency and quality control ensures full accountability for results"

Team Profile

Globally we manage over $76bn (AUD as at 31 December 2016) across 10 distinct investment teams in a range of fixed income portfolios. Each team is led by an experienced business head reporting into the Chief Investment Officer, Fixed Income & Multi Asset, Paul Griffiths. The investment teams are supported by other relevant global teams, including our credit research, dealing and business resources teams.

53
17
yrs
5
yrs

Credit Research

Our Global Credit Research team supports our entire global fixed income and credit business. Thorough credit research is the building block for our investment processes and the global team is an integral component in the success of our investment strategies.

  • Well established, multi-dimensional, bottom-up credit research.
  • Credit research focuses on assessing credit risk and identifying deteriorating issuers. Analysis looking at a variety of dimensions enables significant breadth.
  • Incorporate Environmental, Social & Government factors in the credit assessment.
  • Assign every credit security an internal risk rating, estimate of loss given default and information quality score.
  • Team of 14 with an average of 15 years’ industry experience and four years with the firm.

 

 "Thorough credit research is the building block for our investment processes and the global team is an integral component in the success of our investment strategies."

ESG Integration

We believe ESG issues have a significant bearing on risk. Poor corporate and regulatory governance are recognised contributors in most corporate failures. In addition, dangerous environmental and social practices can lead to significant financial cost, as well as reputational and brand damage. 

In our experience, companies and governments that manage ESG risks poorly typically manage other risks poorly. This has a flow on effect, which filters through to most aspects of the business.

Assessment and monitoring

Analysts identify ESG risks during their bottom-up credit research. We analyse ESG risks through our own risk framework, which also takes into account Stranding Risk1, arriving at a customised ESG ranking. Analysts consider these issues alongside their own research with reference to a variety of other external sources. 

By analysing and assessing ESG issues within a company, we can identify sources of unrecognised financial risk. We are able to identify companies with a higher default risk than the balance sheet implies. This gives us greater insight than that offered by a rating from a traditional credit agency. 

Integration

A key output of the credit research process is the internal credit rating (ICR). The ICR is a forward looking measure of default risk over a 1-3 year time frame. Our ICR is on the same scale as ratings assigned by major ratings agencies, but can be materially different for individual issuers. 

Engagement

Our key engagement is with banks and counterparties to understand their ESG risks and their approach to managing those risks. For example, we are interested in understanding climate change and other environmental risks relating to a bank's loan book and financing, and aspects of their lending policies. 

A challenge for responsible credit investors has been effective ESG engagement with issuers. This is in part due to the contractual nature of bond investments and the fact that a majority of securities are purchased on secondary markets. We do, however, actively incorporate ESG questions into our regular investor updates with issuers. Our brokers are aware of our ESG focus and also facilitate ESG discussions where possible. We continue to build on this program of engagement. 

1Stranded Risk relates to the risk of assets losing value or turning into liabilities before the end of their expected economic life (e.g. fossil fuels remaining in the ground due to the emergence of renewable energy sources).

"By analysing and assessing ESG issues within a company, we can identify sources of unrecognised financial risk. We are able to identify companies with a higher default risk than the balance sheet implies. This gives us greater insight than that offered by a rating from a traditional credit agency." 

ESG Profile - Influence on Internal Credit Ratings and Default Experience

Over the last two years we have reported on the influence ESG factors have on our internal credit rating when compared to the credit rating agencies and how we believe this helps us reduce incidence of defaults. As part of our annual reporting we will be updating these statistics. 

The first chart shows how our internal credit rating differs from the credit rating agencies. The second shows how issuers with high ESG risk are more likely to be the group that has received lower ratings.

The final chart shows our default experience versus what would have been experienced by a fund weighted as per the credit rating agencies' ratings. 

Climate Change

The section below provides additional, team specific, information on climate change. Further information on our approach to climate change can be found in our climate change statement. The Our Progress section also includes information on how the credit research team adapted the Stranded Assets toolkit to the credit research process to assess fossil fuel and related company bonds. 

Team Climate Change Statement

We acknowledge that all components of our investible universe are potentially exposed to investment risks relating to climate change. We expect climate change to impact across environmental issues, economic performance, social behaviour, political stability, infrastructure and other aspects of human existence. The changes are likely to develop gradually, but could have more abrupt impacts on investments.

Among corporate issuers, some are more directly exposed to climate change than others. However, all companies and governments will be affected by the success or failure of social and global efforts to combat climate change.

Investment Opinion Network (ION)

We believe individuals and teams are best placed to meet their potential by working collaboratively, particularly in today’s interlinked and fast-paced global financial markets. Therefore, we seek to systematically communicate and engage with one another to maximise value added for our clients.

In today’s fast moving and increasingly integrated world, we seek to develop sophisticated tools that help us grow to become better investors tomorrow than we are today for the benefit of our clients. More than simply a repository system, ION is a state-of-the-art, technology-based platform has been built from the ground up to support and enhance worldwide collaboration.

What is ION?

ION is our proprietary opinion network used to store, organise and communicate the research and subsequent investment decisions of the Fixed Income and Multi-Asset Solutions teams located globally. The investment content within ION spans global interest rates, currency, credit, and individual issuers in both developed and emerging markets. Unique from other research warehouses, ION communicates an investment signal sent by our specialists representing a recommended long or short position. ION, in effect, creates a virtual global trading floor for all investment specialists by supporting a common investment signal communication framework and its supporting research.

How has ION been developed?

The genesis of ION was conceived and overseen by investment professionals within the firm, with the support of dedicated software development engineers embedded within the organisation. These software developers sit beside fixed income investment professionals and possess an in-depth understanding of fixed income investments. The ION system is an intranet-based tool that connects with the firm’s software infrastructure and is available in all global locations for those with authenticated logon credentials.

How is ION utilised?

ION gives the Fixed Income and Multi-Asset Solutions team a means to collaborate, demonstrate and manage investment ideas, methods and resources. Collaboration is not just the sharing of investment ideas, but sharing of methods and practices used to arrive at investment recommendations. Collaboration allows investment professionals from one region of the world to view or invest ideas from another region or market. ION additionally allows teams the means to demonstrate how they operate their process and bring forth investment ideas within portfolios. Lastly, ION is a means to monitor investors to improve outcomes over time. With a history of stored investment decisions and supporting research, investment results can be measured and reflected upon so as to understand what worked and what did not.

What are the key features of ION?

Although ongoing investment and development means ION will evolve over time, key features include the following:

  1. Common language allows different investment process to operate as needed by a particular asset class, yet still communicate, work together, and share ideas and views. Using ION therefore does not alter how the various processes function.
  2. Applies a single approach to how views are registered, communicated, and reviewed. This allows views to be considered and compared in a consistent fashion.
  3. Allows users to tailor and design their unique informational needs including review levels and performance measurement.
  4. ION allows input and, in doing so, allows different analysts in different investment centres to monitor other views and engage where appropriate.
  5. Provides measures of decision and research quality along with product integrity, so that team members can individually and collectively understand behaviour to become better investors tomorrow than today. Additionally, contributions can be evaluated in an objective, consistent, and transparent manner.

 

"ION is a means to monitor investors to improve outcomes over time. With a history of stored investment decisions and supporting research, investment results can be measured and reflected upon so as to understand what worked and what did not."


"The investment content within ION spans global interest rates, currency, credit, and individual issuers in both developed and emerging markets."

  "Collaboration is not just the sharing of investment ideas, but sharing of methods and practices used to arrive at investment recommendations."