Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
REAMS offering an unconstrained fixed income solution
REAMS Asset Management, a US-based specialist fixed income manager, has started to market its unconstrained fixed income strategies in Australia, through third-party marketing firm Introvest.
The firm, which launched in 1981and is led by long-time CIO, Mark Egan, has been managing unconstrained fixed income since 1998, with an average annual return of 9.3 per cent. But it’s not for the faint hearted. For instance, in 2009 its annual return was 77 per cent. The following year it was 29 per cent.
On a visit to Australia last week, with Introvest’s Mike Stewart, Steve Masarik, a senior portfolio specialist, said the firm tends to define risk differently from many other managers, looking to avoid losses rather than limiting volatility. The unconstrained strategy has a low correlation with the traditional fixed income benchmarks and slightly higher volatility.
“It’s a unique upside/downside capture profile,” Masarik said. “We don’t have explicit volatility or return targets. These tend to box managers in and constrain the decision-making process. Instead we look to take what the market is giving us and allocate capital to wherever we see the best opportunities. We stay liquid, stay in senior securities and stay patient when valuations are unattractive, like they are today in most segments of the bond market.” REAMS believes that its focus on total returns over a full market cycle, rather than yield, is a distinguishing feature.
Stewart said that the strategy likely to be most popular with Australian and New Zealand investors is the unconstrained fund. Smaller US-centric strategies, which give you an idea of the specialist nature of the firm, include a “core”, “intermediate”, long duration, low duration, ultra-low duration and a real return fund. Total funds under management was US$20.3 billion as of June 30.
While the firm had its roots in the corporate defined benefit market, in recent years it has added some prestige names to its client list among big public funds and Taft-Hartley funds.
Fixed income has perplexed many fund CIOs of late because of low or even negative interest rates in major countries. And equities are looking toppy with the longest bull market in history. Unconstrained is definitely the way to go, with Australian funds also seeking out private credit and emerging market debt.
– G.B.
