Both were members of the APG convertible bond team, which ran a portfolio of long-only convertible assets of €6bn (£4.3bn): Saber from 2003-10; and Van Ingen, 2004-07.
While at APG the pair invested across both an alpha and a beta bucket, the NN fund invests strictly for alpha in companies it believes have strong drivers of future earnings.
Ivan Nikolov, who joined NN earlier this year from Aberdeen Asset Management, rounds out the team of three portfolio managers.
Eschewing traditional geographic and sectoral buckets, the fund breaks down its portfolio into various themes, such as cloud computing and beneficiaries of QE in Japan.
But because it only invests in convertible bonds, it is always a price-taker.
“It depends what is being offered in the market. We look for things that are going to change in particular areas,” says Saber.
“We try to determine what the drivers of a company’s profits will be. There might be a theme we love but the bond we can invest in is too expensive. Or, conversely, a new thematic idea might be born out of a new issue.”
Van Ingen adds: “Over the years we have found it is better to invest in our second or third-favourite bond where the theme is right, rather than a great structure where the theme or the drivers are not right.”
Once the key drivers of a company have been established, the initial credit work is done to determine, in a worst-case scenario, whether or not they would at least get their money back.
Companies passing that initial screen are scored on three criteria: liquidity, structure and conviction. A company’s score on all three metrics will determine the size of its target weighting within the fund.
Any of the three portfolio managers can put an idea forward, after which they have a formal meeting, where, Saber says, they try to kick the idea to death.
“We would rather the idea die in the committee than out in the market,” adds Van Ingen.
When asked about liquidity more generally within markets, and in particular the effect of the decline in the market-making appetite of the sell side within fixed-income markets, Saber says it has had less of an impact in the convertible bond market than it has in the broader fixed-income market.
And because of the fund’s strict liquidity criteria, he is not particularly concerned about it.
“How is liquidity today compared with 2007? I would say it is worse but still manageable. The renewal of the market is running at about £100bn a year, and this year we are on target for more issuance than last year.”
And, historically, when rates have started to go up, the convertible bond market tends to see more issuances.
That said, both Van Ingen and Saber are concerned about geopolitical issues such as those ongoing in
Greece and the possible impact on global markets of an increase in US interest rates, which they expect will go up in September if they go up at all.
