Principal® launches tailored EMD fund for Australian institutional market
Principal Global Investors®, a leading asset management firm with over US$576.8 billion in assets under management, today announced the launch of its new, total return emerging market debt (EMD) Fund specifically designed to meet Australian institutional investor demand for yield-oriented solutions. The Finisterre Emerging Market Debt Total Return Fund (the Fund) will be managed by Finisterre Capital (Finisterre).
“With this new fund, we are addressing the needs of the Australian institutional marketplace that sees EMD as an attractive investment. Emerging economies have coped with the pandemic reasonably well and we remain convinced that the role of EMD in investor portfolios is set to expand in the coming years,” said Mr. Damien Buchet, Chief Investment Officer for Finisterre Capital.
The Fund is designed to deliver income and capital gains while managing liquidity and limiting drawdowns during volatile market conditions. The Fund seeks to offer institutional investors more than 90% of EMD market upside for around half its volatility and less than 50% of its downside.
Beyond the use of an innovative process of risk allocation to five complementary risk/return buckets of EMD assets across the market cycle, another key feature of the Fund is its unique approach to hedging foreign exchange risk for Australian institutional investors. The Fund hedges 100% of the hard currency (U.S. dollar) exposure while leaving active local currency exposures unhedged versus the Australian dollar. This allows local investors to benefit from the Australian dollar’s positive correlation with emerging market currencies with the added protection against volatility associated with unwanted U.S. dollar risk.
The Fund has been seeded by Vision Super. Commenting on the announcement, Vision Super Chief Investment Officer Michael Wyrsch said, “We are excited by the opportunity and are looking forward to a long and productive partnership with Principal and Finisterre.”
Based in London, Finisterre is an internal investment management group of Principal Global Investors with an unrelenting focus on delivering investment solutions using various active EMD strategies.
“Our investing philosophy is completely index agnostic, truly unconstrained, and fully adapted to the efficient management of EMD, which has evolved to become an essential part of an investor’s toolkit,” Buchet said. “Opportunistic, yield-oriented investments, which include EMD, complement a core fixed income portfolio and are designed to add diversification that balances risk and reward in a dynamic global environment.”
The Finisterre Total Return Emerging Markets Fixed Income Strategy (the same underlying strategy used in the Fund for Australia) was awarded the 2020 Emerging Markets Debt Strategy of the Year at Pension Bridge’s 2020 Institutional Asset Management Awards, further emphasising its success.
EMD as a compelling investment in recovering global economy
Principal Global Investors Managing Director and Head of Australia Helen de Mestre said local institutional investors see EMD as a compelling investment as the asset class continues to mature and looks increasingly favourable in today’s economic environment.
“The current market dynamics are driving Australian institutional investors to include EMD as a key component of a diversified portfolio that looks to boost long-term returns and generate yield,” de Mestre said. “In developing this new EMD fund, we consulted heavily with the local institutional marketplace to understand and service their needs in this dynamic economic environment”.
“We recognise that the pandemic continues to pose investment risks and, after one of the most volatile periods on record, institutional investors remain cautious. Our view is that some of the most compelling investment opportunities in fixed income are in emerging markets. The expertise of Finisterre is critical in helping investors through the active selection of EMD investments that enhance and complement core portfolios in a risk-controlled manner,” de Mestre added.
About Principal Global Investors®
Principal Global Investors® leads global asset management at Principal®. As a multi-investment team firm, we bring a focused perspective and offer expertise across a host of asset classes.
At our core, we are driven by our purpose to help investors and businesses achieve their financial goals. Our global investment professionals deliver investment solutions for public and private pension funds, foundations and endowments, central banks, insurance companies, sub-advisory arrangements, sovereign wealth funds, and individual portfolios.
Principal Global Investors manages approximately US$576.8 billion in assets on behalf of over 800 institutional clients located in over 80 markets as well as retirement plans and individual clients, reflecting our worldwide market reach and experience and our commitment to high-quality research and service (as of June 30, 2021). To find out more, visit us at principalglobal.com.
About Finisterre Capital
Founded in 2002, Finisterre Capital LLP is an emerging markets specialist dedicated to delivering risk-controlled, total return investment strategies to the institutional marketplace. The firm, which has US$3.3 billion of assets under management (as of June 30, 2021) manages emerging markets funds in a variety of asset classes, including sovereign debt, local currency debt, foreign exchange, and corporate credit.
Finisterre’s strategies are all meant to deliver specific and adaptive risk/return solutions to a wide range of institutional and wealth management investors, emphasizing a conviction-based and dynamic approach to investment and risk management. Alongside its core award-winning Emerging Markets Debt Total Return strategy, Finisterre manages variants of this strategy adapted to specific regulatory environments, ESG, or rating constraints, as well as income focused portfolios in U.S. dollar and euro.
Finisterre has been majority-owned by Principal® since 2011.
Vision Super is not affiliated with Principal Global Investors.
Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal. Asset allocation and diversification do not ensure a profit or protect against a loss. There is no guarantee that investment objectives will be achieved or that any investment will be successful.
Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Investing in emerging markets has associated risks including currency risk, confiscatory taxation, nationalization of assets, possibility of expropriation, volatility, liquidity and external factors e.g. war, natural disasters. Derivatives are volatile and carry a high degree of risk, including liquidity risk. Leverage can magnify losses as well as gains. Investment in foreign currency can result in losses and values may fluctuate based on foreign exchange rates, exchange restrictions, or other actions of governments or central banks. International and global investing involves greater risks such as currency fluctuations, political/social instability, and differing accounting standards. Risk is magnified in emerging markets, which may lack established legal, political, business, or social structures to support securities markets. Emerging market debt may be subject to heightened default and liquidity risk.
Finisterre Unconstrained Emerging Market Fixed Income Strategy earned Debt Strategy of the Year ending June 30, 2020.
Pension Bridge Judging Methodology and Criteria: The fund categories are open to any funds that have institutional investors, including, but not limited to, SMAs. Judging involved two stages. The first stage is purely the quantitative elements to derive leader boards from the entries. Leader boards informed and populated the shortlists for each category, who went through to the second stage of judging where a panel of independent and impartial judges from Institutional Investors and Consultants ensure firstly that the data is correct and use their knowledge and the qualitative elements of the entry process to decide on the winners by category. All data requested is through June 2020. Quantitative elements include: Each fund’s performance is measured next to the most appropriate benchmark for the 1-, 3-, and 5-year periods ending June 30, 2020 and account for 20%, 10% and 10% of the overall score, respectively. Each fund’s net AUM growth in real terms and % terms as well as the number of mandates won in over the 12-month period ending June 30, 2020 account for 10%, 10% and 10% of the overall score, respectively. Calculation of returns does not take into account sales charges or 12b-1 fees, if any. Qualitative elements include ESG, innovation, key staff turnover, usage of marketing and sales materials and account for 30% of the scoring. The number of entries judged per category is not disclosed.
Third party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation.
The views and opinions expressed are for informational and educational purposes only and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties.
This document is issued in Australia by Principal Global Investors (Australia) Limited (ABN 45 102 488 068, AFS Licence No. 225385), which is regulated by the Australian Securities and Investments Commission. This document is for the relevant media channels’ use only and not for distribution to the general public. The Fund is not available to retail clients and is intended primarily for Wholesale Clients. No offer of units in the Fund or invitation to subscribe for units is made to any person unless the person is a Wholesale Client for the purposes of section 761G of the Corporations Act.
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