Credit where it’s due
The results of 2006’s Fund Manager of the Year awards show Pimco’s dominance of the fixed interest patch is not just in its size and reach. It has also dominated on quality by bagging both the diversified prize and the award for credit.
Credit is a type of fixed interest investment class that includes corporate bonds and mortgage-backed securities but excludes government bonds. But emerging market debt can also be counted as a credit investment.
According to the Investment Management Consultants Association (IMCA), credit now makes up about 20 per cent of the fixed interest universe, and it says large manager Pimco is in a good position to flash its scale to corporates worldwide.
Pimco’s Australian executive vice-president John Wilson adds that it is also in a good position to negotiate emerging market debt purchases with the likes of above investment graders like the BBB-rated Russians, BBB-rated Mexicans and countries slightly below investment grade like BB-rated Brazil, to name just a few.
Wilson also credits Pimco’s analysts for being serious about what they do.
“We take credit research as a career calling. Our analysts are not juniors to be picked off to do other things,” Wilson says.
“We also have strong research. We’re looking at the same things as an equity investor, but with one main difference: looking to make sure the corporation issuing the bond is money good over the maturity of the bond. Looking over the next five years, they’ve got to have enough in their business to meet that debt obligation.”
As for the runner up in the credit category of this year’s award, IMCA once again praised Colonial First State’s ability to transfer global alpha to local benchmarks. In other words, the fund is able to provide the benefit of global markets but not the bond risk, you just get the cash benchmark. And it has very good controls for its credit strategy.
As a credit manager, CFS head of credit funds Tony Fitzgerald said the Commonwealth Bank-backed outfit must ensure two things.
“First, the return must be adequate for the risk and, as the risk continually changes, we must relentlessly monitor the individual risk/return. Second, if the return is adequate, you then need to ensure you retain the return by avoiding losses through substantial credit deterioration or default.
“Our performance success is based on the best practice credit risk assessment and credit portfolio construction tools and techniques we use to achieve these aims. But, the simple outcome of this advanced approach is the acknowledgement that diversification is the best way to mitigate the risk when investing in credit.”
Credit
Winner: Pimco Australia
Finalist: Colonial First State Investments
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