This is a sponsored advertorial from L&G.
L&G’s global unconstrained bond strategies have enjoyed exemplary growth in Asian wealth management circles since the UK-headquartered US$1.617 trillion* global asset manager accelerated its efforts in Asia in mid-2024.
Asian Private Banker (APB) caught up with Matthew Rees, head of global unconstrained fixed income at L&G, to explore the drivers behind growing demand for unconstrained bond strategies in today’s challenging market environment. He also shared why he believes this could mark the start of a new era for these strategies among private wealth investors in Asia.
head of global unconstrained fixed income, L&G
Rees – who APB named as Portfolio Manager of the Year in its 2026 Asset Management Awards – quickly identifies a clear unifying pull factor behind the surging popularity of unconstrained bond strategies.
“Our clients – on both the institutional and private wealth sides of our business – have been increasingly vociferous about their demands for fixed income products that are not tied to benchmarks and which have sufficient flexibility that they can prioritise risk mitigation while offering sustained absolute returns in, crucially, a variety of market conditions,” he said.
Global unconstrained bond strategies have become more popular among fixed income investors following recent periods of market stress, including the 2008-2009 Global Financial Crisis, when credit concerns were uppermost in clients’ minds; and throughout the COVID-19 period of 2020-2022, when rising interest rates made duration the primary source of investor concern.
“Our clients demanded that we dial down those different credit and duration risks during those crisis periods by employing unconstrained strategies,” said Rees. “We were able to demonstrate both agility and market leadership in the process. We’re not tied to benchmarks, nor are we constrained by limits on credit quality, maturity, sector or geography – we can move opportunistically on a global basis as we aim to offset the risks that produce negative returns and, at the same time, source fixed income investment opportunities that should, over time, generate returns of 5-10% a year.”
A track record of navigating volatile times
He reflects on how his team helped investors navigate the 2020-2022 period.
“It had been clear to us since 2018 that the market as a whole was becoming worried about inflation and we cut our duration in those strategies where we could do so to below one year,” he said. “In some of the strategies, we actually went negative duration during 2022. The result was that we only lost 3% in our main income strategies, whereas the global credit benchmark lost 11% and some of our peers lost between 15-20%. And in those funds that were able to go negative duration, we actually achieved positive absolute returns.”
Rees maintained that L&G’s distinct approach to dynamic duration management is at the core of its unconstrained bond strategies and how they deliver long-term returns for clients. “If investors stick to a static level of duration or if they believe they can forecast duration, they will inevitably embed volatility into their portfolios. We approach fixed income investment very differently, using duration principally as a hedge. We’ve reduced volatility within our funds significantly as a result and that, I believe, is one of our key differentiators from our competitors,” Rees said.
Using liquidity as a hedge
The same flexibility proved valuable in the run-up to the UK gilt sell-off in the third quarter of 2022. In this instance, the ability to move quickly in and out of cash helped the team navigate a period of significant market dislocation.
“The most liquidity we ever took was 35% in advance of the gilt sell-off,” said Rees. “This was not because we predicted the event itself but because we thought the market was too expensive given what was happening at the time with the Russia-Ukraine war. So, when the sell-off happened, we were very well positioned for it, and we had redeployed 15% of that liquidity within two months because there were big dislocations – particularly in the US securitised and sterling credit markets – from which we could profit. We were able to buy, for example, very short duration investment grade paper at around 6-7% at a time when interest rates were very, very low.”
Rees speaks of liquidity – after duration – as one of his most important sources of hedging. “Building up our liquidity in advance of market problems and mobilising that liquidity to increase returns has always been a core fundamental for our investment approach. For instance, in the first week after the Middle East conflict started [in February 2026], we increased our liquidity by around six percentage points to 6-10% in most of our unconstrained bond strategies because US investment grade bond spreads did not initially widen – and the same was true of banks’ AT1 [additional tier 1 perpetual, high-yield] bonds.
“We were then able to deploy that liquidity as spreads subsequently widened following investors’ delayed negative reactions to the conflict. In short, we were able to build up a liquidity buffer which we were rapidly able to redeploy when spreads became more attractive.”
Well-positioned for growth in today’s volatile market conditions
L&G believes unconstrained bond strategies are well positioned to gain further traction as investors contend with persistent market volatility and focus on the twin concerns currently dominating investment sentiment.
As Rees pointed out: “Private wealth investors are now mostly concerned about over-exposure to the US and, in particular, about an AI tail risk given the sheer weight of supply we are now seeing from unprecedented new issuance levels on the part of the hyperscalers.”
For now, Rees is cautious of both themes. “Being unconstrained means we don’t have to have too much US exposure – and we don’t,” said Rees. “Within most of our strategies, exposure to the US is at 25-30% in our funds while US credit is between 65-75% of investment grade and high-yield benchmarks – and some of our peers have that much exposure to the US.
“I’ve also kept AI-related investments to between 0-5% of my portfolio – and I’ve been very active in moving that around – whereas AI is around 7% of the benchmark in US fixed income, and rapidly increasing.”
With great freedom comes great responsibility
Rees has an abiding belief that with great freedom comes great responsibility. He combines this belief with a similarly binding set of investment tenets.
“We have great respect for the freedom our clients give us to act in an unconstrained way by adhering to a core investment philosophy,” he said. “Namely, we seek to maximise upside opportunities through the diversification we achieve in our portfolios – principally in regard to credit. And we mitigate downside risk through painstakingly researched and applied duration management techniques.”
Investing off the back of a robust global platform
In this regard, a robust, tried-and-tested framework for asset allocation decisions is at the core of L&G’s constant search for alpha. “We have a quantitative-led strategic asset allocation process which helps to define our investment universe and provides guidelines on the optimum mix of asset classes at any given time,” said Rees.
The investment process is bolstered by L&G’s 190-year heritage in insurance and understanding risk and its extensive global reach – with dedicated fixed income hubs in Chicago, London, Hong Kong and Singapore. Its global fixed income teams include 64 portfolio managers, 49 credit analysts, a team of 12 strategists and economists, and a team of 35 climate analysts, all of whom are integrated in the research process.
“This gives us the widest opportunities to capture upside through our credit allocation,” said Rees. “We benefit from L&G’s global operating model and are able to tap into the asset class specialisations of other teams, for example, in emerging markets, high yield or US securitised, if they lie outside my team’s focus. So, all of our experts are in-house. Meaning we are able to give our clients the best of L&G globally to ensure we are constantly identifying and harnessing upside opportunities. Taking a team-based approach is also a key principle across all of our investment strategies.”
How far can they go? How much can they grow?
L&G’s global unconstrained bond strategies have raised more than US$2 billion over the past two years, highlighting the growing appetite among private wealth investors for such strategies. Rees believes, however, that this may represent only the beginning of a significantly larger growth opportunity. He noted that clients in the past limited their absolute return allocations to less than 5% of their total fixed income portfolios.
“But that was when the duration element within portfolios acted as a good hedge against equities going down,” he says. “That all changed in 2021-2022 when duration failed to act as a diversifier against falling equity markets. Duration didn’t rally. Combined with the persistent volatility of prevailing market conditions, I now envisage that unconstrained bond strategy allocations could potentially increase to more like 10-15% of private wealth clients’ fixed income portfolios.”
Learn more about L&G’s global unconstrained bond strategies here.
* Source for AUM data: L&G, global AUM as at 30 June 2026. Excludes assets managed by associates (Pemberton, NTR, BTR). The AUM includes the value of securities and derivatives positions and may not total due to rounding.
Important information
The value of an investment and any income taken from it is not guaranteed and can go down as well as up, and the investor may get back less than the original amount invested. Past performance is not a guide to the future.
This is a sponsored advertorial from L&G.