The search for income, the need for risk-adjusted returns and the growing demand for sustainable investments has made institutional investing more challenging. Fund managers Gary Kirk and Eoin Walsh explain why a new type of sustainable income solution is needed.
Income remains a scarce commodity in today's markets. Large-scale intervention by governments and central banks in 2020 has helped drive risk asset valuations ever higher, despite the damage wrought by Covid-19, compressing yields and making portfolio income distribution objectives harder to achieve in both equities and fixed income.
As investors now grapple with an uneven economic recovery, the threat of inflation and uncertainty over the path of global monetary policy, addressing this income gap is not easy, especially when combined with the need for capital growth and adherence to risk parameters.
For pension schemes in particular the hunt for income is as hard as ever, says Alistair Wilson, head of institutional investment at TwentyFour, as investor demand and regulatory change throw the spotlight on environmental, social and governance (ESG) concerns.
"A lot of pension schemes are still underfunded and looking for returns, but they need to do that in the lowest risk way they can," he explains. "That typically means moving out of equities and into fixed income. This shift means there is no point spending all your effort on ESG for equities when it's increasingly important to be looking at ESG in your fixed income portfolio."
For fixed income specialist TwentyFour Asset Management, an elegant solution to this growing challenge is a sustainable multi-sector credit strategy that has active ESG analysis at its core and is specifically designed to meet the challenges faced by the institutional market - a product the managers say has the aim of delivering higher yields, the opportunity for capital growth, and credible sustainability qualities.