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MAC: Bottom-up thinking


Garland Hansmann, a portfolio manager in Investec’s Multi-Asset Credit Strategy team, tells portfolio institutional about what makes their approach different in the growing multi-asset credit (MAC) market.


What asset classes, sectors and regions fea- ture in your investment universe? We cover a wide spectrum of credit. This means standard segments, such as global high yield, global investment grade and global corporate loans, as well as more niche areas like structured credit, which for us means collateralised loan obligations (CLO).


There is also emerging market corporate credit where the issuer is based outside of the developed market. We also think about specialist markets such as cor- porate hybrids or bank capital, which are subordinated forms of debt from investment-grade issuers.


cess in finding those types of deals in struc- tured credit. We are getting lower returns here than the Libor + 4% we tend to look for, but we are getting a return with a high underlying credit quality and with low risk. These bonds are AAA or AA rated and gives us between 120 and 180 basis points over Libor. That is quite attractive if you think about the near zero risk that you are taking in credit terms. Corporate hybrids are another area that have been strong contributors to return


When spreads get


The short duration markets within credit have their own risk-return profile and supply and demand dynamic, so we single them out and treat them as their own little market. These are the areas in which we hunt. So what credit assets are you bullish on? We tend not say: “Here is a particular area that we think is hot. Let’s jump into that with both feet and see what we can find.” In fact, it works the other way around. We like to describe it as being “pulled by value”. We look at the type of return we are trying to generate and the risk we are willing to accept and then look at all markets to pick out the individual securities that fit best. It is bottom-up driven and individually security driven. We have recently had a high degree of suc-


tighter, covenants get lighter and competition for assets gets higher, we back off.


recently. These are typically subordinated debt issued by investment-grade compa- nies. The interesting aspect around that, from a credit perspective, is that they are a low credit risk. From a market price behav- ioural aspect, they perform more like high- yield bonds in that they have big price moves. Considering that we are potentially at the backend of the economic cycle, if you can find something that gives you a higher return by prices moving and attractive cou- pons but has an underlying defensive credit profile, then it’s a great investment. That has helped the fund out recently.


How are you exploiting inefficiencies in credit markets?


There are some markets that have a high degree of efficiency. Large cap equity or gov- ernment bonds come to mind. Then there are markets that have lower degrees of effi- ciency, which you can exploit.


One of the reasons why efficiencies are per- manent in credit markets is that there are rating biases. Many investors’ investment policy from a regulatory perspective is sometimes tied to the rating.


There is also something we call the “home bias” where a company based in Europe or the UK issuing in dollars typically pays a wider spread in a foreign currency market and vice versa because that issuer is not as well known.


Structures like ETFs distort markets further by having a liquidity profile that is different to that of the underlying market.


There are various reasons why credit mar- kets are permanently inefficient, and we try to harness those inefficiencies to improve the returns for the risks we are taking. We are always about taking what we believe to be the best risk-return profile into the portfolio. How does your approach to MAC differ from other asset managers? Many traditional credit investors run against benchmarks, so their objective and the way they manage the fund is different to us. We are a total return-oriented investor.


24 | portfolio institutional | November 2019 | issue 88


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