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APB Intensive 7.0: Opportunities abound despite market uncertainties

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Despite economic turmoil, high inflation and pressurised margins, and a recession in sight, fund managers at Asian Private Banker‘s 7th Intensive event identified compelling opportunities ranging from investment grade (IG) credit, special situations, small-cap equities, hedge funds and farmland.

During the webinar, select fund managers pitched their latest investment convictions and product solutions to an exclusive audience of the region’s fund selector community across more than 30 private banks and family offices.

Allspring Global Investments: Pursuing yield and return in US IG credit

George Bory, chief investment strategist at Allspring Global Investments, identified opportunities in US IG credit, in making the case for Allspring’s US Investment Grade Credit Fund.

Bory explained that the Federal Reserve appears close to an inflection point in policy and noted that historically, fixed income tends to perform well when the Fed stops tightening policy, as interest rate volatility tends to decline, longer-term bond yields come down, and prices go up.

Further, Bory stated that such higher returns are not evenly distributed: “Higher quality parts of the market, such as investment grade credit, should benefit from not only a less hawkish central bank but also perform well in a challenged economic backdrop,” he said.

He added that US dollar IG credit could provide diversification due to issuer variety, as more than 25% of bonds are issued by non-US issuers.


Invesco Private Credit: Opportunities in special situations

Invesco Private Credit (IPC) presented its investment strategy focusing on small-cap companies in special or distressed situations.

Paul Triggiani, managing director, head of distressed credit and special situations at IPC, highlighted that we are now in an environment of high inflation and bloated cost structures.

Moreover, the leveraged credit market since the global financial crisis has expanded threefold, contributing to the growth of direct lending, where IPC has invested US$2 trillion, primarily to small-cap companies.

Triggiani stated that as a percentage of leveraged loans and high yield bonds maturing by 2026, almost half of them are split-B rated and below, and almost half are in the small-cap universe targeted in special situations. This, along with the high interest rate environment, could lead to significant refinancing challenges over the next few years, making it an interesting time for opportunities in special situations.

“Whether we’re in cycle or out of cycle, from the point of view of a recession, times are good for us to invest, in terms of making good risk-adjusted returns,” said Triggiani.

Virtus Investment Partners: Overlooked small-cap US equities

Virtus Investment Partners pitched its Kayne Anderson Rudick (KAR) U.S. Small Cap Focus Strategy. The strategy focuses on the under-researched and under-owned US small-cap companies, seeking superior risk-adjusted returns based on their potential growth.

“We consider ourselves more business analysts than stock pickers,” explained Jason Pomatto, managing director and client portfolio manager at Virtus.

“We take a differentiated approach to investing in the small-cap names. And we want to find really strong high quality companies that can do well over many different market environments and economic cycles. We manage these as high conviction portfolios,” he said.

He added that there are opportunities in US small caps to invest in innovative companies earlier in their lifecycle, which can provide alpha opportunities while being less affected by geopolitical and economic risks.

“Our strategy has received an annualised return of about 12.8% versus about 6.3% for the index since inception, with less risks involved, as shown in the standard deviation of 17.2 versus 20.1” said Pomatto.

Credit Suisse Asset Management: The return of hedge funds

Credit Suisse’s Liquid Alternative Beta Strategy (LAB), invests only in a broad range of liquid instruments with transparency and offers clients a diversified approach to risks and returns, according to the asset manager.

Yung-Shin Kung, head & CIO of quantitative investment strategies at Credit Suisse Asset Management, stressed that LAB is the sole offering that monitors the Credit Suisse hedge fund index, known for its consistent outperformance of widely available hedge fund indices.

Kung made two primary arguments in pitching the strategy. First, LAB allows investors much easier access to hedge funds; and second, the performance of hedge funds is compelling.

“[LAB] offers investors the performance of the hedge fund industry without the challenges of investing in hedge funds,” explained Kung. “LAB is cost-effective, only entailing a single layer of fees. And you’re not paying for managers to take offsetting positions as you could be in a fund of funds.”

“On the performance of hedge funds on a risk-adjusted basis, hedge fund returns are attractive relative to just about everything else out there,” he continued.

Kung added that LAB is not a ‘black box’ lacking transparency, but rather “it’s a set of well-defined rules encapsulating the insights we’ve gained over multiple decades tracking hedge fund performance.”

“We’ve seen very few investors entering this programme but what I want to leave you with, is to let you know the LAB is not a leap of faith. We have over a dozen years of live performance against which you can judge the programme,” he said.

Nuveen Natural Capital: The importance of farmland

Ksenija Drozdova, director and product specialist at Nuveen Natural Capital, shared the importance of having farmland in a portfolio, when she highlighted that “over half of the world’s economy depends on nature. And yet we often take it for granted and even remove it from the business equation.”

Drozdova explained that diversification is key to investing in farmland, “which is why we manage over 45 different crop types that span across row crops like soybeans, wheat, and veggies production, as well as permanent crops like wine, grapes, tree nuts, cherries, avocados, and citrus,” she said.

In terms of growth, Drozdoma pointed in particular to the growing population and the contingent relationship between population and farmland growth.

“Farmland is really uniquely positioned for growth. Due to the positive demand and supply fundamentals, which are driven by the global rise of population,” she stated. “The United Nations has predicted that by 2050, there will be around 10 billion people on this planet, which means that farmland needs to support more people with a limited amount of land.”

“When added to a portfolio, farmland can act as an income return diversifier and add strong risk-adjusted returns when you compare it to other asset classes,” said Drozdova, adding that farmland delivered positive double-digit returns during 2022.

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