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 recognize 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.