JLT Investment Solutions has invested £14m on behalf of clients in Investec Asset Management's new credit strategy, which aims to enhance yields while preserve capital.
The fiduciary manager is the seed investor in the global total return credit fund, and has committed a total of around £50m over the coming months.
The unconstrained strategy will invest in 80-120 of the best ideas across the global credit spectrum, with the portfolio principally built from the bottom up. It aims to create a diversified portfolio to be high-yielding yet comparatively defensive, with low volatility and low sensitivity to interest rates.
JLT Investment Solutions investment director Paul Chapple said given the current interest rate climate and credit cycle, Investec's strategy offers good risk-adjusted returns with lower duration (of just around 3.3 years) than traditional fixed income.
"The multi-credit landscape is continuously evolving and our ability to implement new and innovate credit strategies on behalf of clients is a key reason trustees delegate investment decision making to JLT's investment professionals. We are delighted to offer clients access to these types of strategies as well as have the ability to seed specialist products with third-party fund managers."
Investec's UK client group managing director, David Aird, said as traditional fixed income still fails to deliver meaningful returns, pension funds are increasingly looking for different tools and assets to meet their liabilities and enhance returns. Clients want to harvest yield pick-up and have a firm eye on capital preservation.
"While yields have picked up recently, we're still sitting at all-time lows. In most cases, outside of their liability-driven investment structures, schemes are looking at their fixed income portfolios to see where they can go next in a rising rate environment. For example, if US rates go up by 50 basis points, there is a chance a US treasury could easily lose 3% of its capital overnight. For both DB and DC schemes that use some form of gilts, treasuries, or investment-grade bonds, there is a real risk now of capital loss in a rising rate environment.
"We've called the end of the bull market in bonds a bit too early but we're now starting to see tightening of interest rates - but we will probably see a period of slow and steady interest rates increases.
Other asset managers have previously launched unconstrained bond and credit strategies. While Investec's fund is not unique, this is not an oversupplied part of the market, according to Aird.
The OEIC fund is a sterling-based UK domiciled replica of the SICAV which Investec launched for global clients last summer. The fund will be run by co-managers Jeff Boswell and Garland Hansmann, who both joined Investec from Intermediate Capital Group in 2015 as part of the firm's plans to build a global credit team to develop multi-asset solutions. It will target a total return in excess of three month GBP LIBOR plus 4% per annum over a full credit cycle (gross of fees), with expected volatility of 5%-7% p/a.
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