In March 2023, Alex Ralph (pictured left), former manager of the Artemis Strategic Bond and High Income funds, received a LinkedIn message from former Liontrust bond veteran David Roberts.
“When David Roberts tells you he has an exciting opportunity, you meet him,” she tells Portfolio Adviser.
The opportunity in question, which led to Roberts re-entering the industry despite retiring 18 months previously, was to co-launch a bond boutique at Nedgroup Investments.
“We met the next day and discussed the group opportunity, and the boutique, as well as the fact we had a blank sheet of paper in terms of how we structure the portfolio,” Ralph explains. “The more we spoke, the more it became obvious that we were very aligned in how we had previously run money.
“We both keep a keen eye on risk. We don’t take huge bets one way, and we do keep tabs on what clients expect from us.
“It became very clear that, despite coming from different angles – where David is much more of a macro rates manager and I am more of a credit fund manager – that we manage money very similarly.”
After just “a week or two”, Ralph commits to the idea. And by September, both her and Roberts are fully integrated into the company.
“We started in September, which reflects one of the reasons I joined – there is no elongated pipeline or process in terms of decision-making; people agree and things gets put in place.”
Palomar Fixed-Income
Ralph and Roberts’ boutique, Palomar Fixed-Income, was the first boutique to be created for Nedgroup Investments’ in-house multi-boutique model, which came to fruition in May last year.
Nedgroup Investments is housed under the Nedbank Group umbrella, a South African-based financial services group which offers banking services to both wholesale and retail clients, as well as insurance, wealth management and asset management services.
But despite being a global asset manager in its own right with more than $20bn of assets under management, Nedgroup Investments remains a “sleeping giant” within the UK asset management industry, according to the firm’s chief commercial officer Apiramy Jeyarajah (pictured right).
The former head of UK wholesale at Aviva Investors, who moved to Nedgroup Investments ahead of the launch in April last year, says: “Nedgroup has been in the UK for 30 years, but it has not really made itself known. It is an organisation that has grown organically from $2bn to $20bn.
“We started off supporting our South African clientele in building their offshore exposure. But one of the fundamental beliefs that we have always held is the ‘boutique advantage’.
“So, by partnering with boutiques, each manager has a singular view on an investment strategy, and they are therefore much more aligned to their end clients than if they were working within a larger corporate structure.”
The business has a long track record of establishing partnerships with other boutique asset managers from around the world, including the likes of Veritas Asset Management, First Pacific Advisors and Resolution Capital. But the difference with the new platform launch is that it will allow fund managers to open up a new shop from scratch, as opposed to integrating a pre-existing business into the firm.
“When Tom Caddick took on the responsibility of CEO and managing director of international business [in December 2022], he began to analyse where the gaps in the market are and which client concerns we can really deal with,” Jeyarajah says.
“What we noticed is that, regulatory-wise now, it is so hard to set up new boutiques. How can we support that?
“The second element ahead of the boutique set-up was that, over the last three-to-five years, we have had diminishing returns in core fixed income markets.
“What can we do – and particularly now given uncertainty and volatility – now that there are opportunities arising in that space?”
The chief commercial offer adds that, in order to generate desirable returns amid a challenging backdrop, fixed income managers have been increasingly allocating to exposure outside of their funds’ benchmarks. This therefore changed the risk-reward exposure of mandates and made it increasingly difficult for fund selectors and asset allocators to “understand where the risks lie and where their returns are coming from”.
“We were therefore looking for people who were very consistent in their approach in this space, who have been very focused on core markets and how they drive those opportunities.
“That’s why we decided to contact David Roberts, who then contacted Alex.”
One particular reason Roberts seemed a good fit for the business is his long-held view of having ‘skin in the game’, according to Jeyarajah.
“David has been very vocal in the marketplace saying he was invested in his own funds, and that when there were no longer opportunities in this space, that he would step away.
“This is effectively what he did. When we first started engaging with him, he told us markets aren’t looking very good. Integrity is very important. Then, as that conversation progressed and the market dynamics started to shift, progress accelerated massively.
“Then, David joined in March and I joined in April. Everything moved super quickly.”
Shortly after Roberts’ appointment, Ralph was quickly chosen as the top candidate for co manager.
Jeyarajah says: “I was in the office when David [Roberts] and Tom [Caddick] were discussing who his co-manager should be. David asked about Alex Ralph and, without skipping a beat, Tom reeled off her fund’s entire track record. When you have been a fund selector your whole life like Tom has, this is an enormous benefit when building a team.
“We had no shortlist whatsoever. In fact, David said Alex [Ralph] was always his biggest competitor in the market, but that he had never met her. And that was when he sent the LinkedIn message. The next day Alex was in the office.”
In fact, it was this ability for the business to make decisions in a timely fashion that attracted both Jeyarajah and Ralph to the business in the first place.
“It was a great opportunity to challenge what a good boutique looks like,” the chief commercial officer continues. “How can you remove the friction in the sales system? How can you be as client-centric as possible?
“We don’t have any of the old legacy or infrastructure issues. We can be agile, we can create a nimble team, and we can hire people based on their individual skillsets and how these skillsets come together.”
Global Strategic Bond fund
By November last year, Ralph and Roberts had already set up the parameters that their fund – the Nedgroup Investments Global Strategic Bond fund – would operate under.
Now widely available to UK retail and professional investors, the fund aims for superior rolling three-year risk-adjusted returns relative to the Bloomberg Global Aggregate Total Return index. It does so through a portfolio of between 80 and 100 issues, 20% to 60% of which are held in investment-grade corporate bonds at any one time. However, it will also hold between 30% and 40% in developed market sovereign bonds and 20% to 30% in high-yield bonds, although it will steer clear from so-called ‘junk bonds’, which are rated as CCC or lower. It can also hold up to 10% in emerging market debt.
Ralph says: “The investment thesis is back to the core, because we believe that given where yields are, we can derive a very attractive income from these core markets.
“We have put certain parameters in place – we won’t go into AT1s for example, or CCC-rated bonds. We’re very much staying out of those equity-like instruments, because we think we can generate good performance without them. For the fund throughout the cycle, the average credit rating will be BBB.”
In terms of current positioning, the fund is underweight high yield relative to its own median parameter. And, for any emerging market debt that is held, this will only be issued in US dollars or euros.
“We don’t take any currency risk – it is all hedged, and it’s all hard currency. However, it will essentially be developed market [debt] in the main,” Ralph explains.
In terms of duration, the manager says this currently stands at an average of six years – although the fund is able to move from zero to ten years. However, this will typically remain between three-to-eight years.
“We do believe that the levels of yield are attractive. We think most of the returns over the short-to-medium term will be income-driven,” she says. “Having said that, on a 12-month view, we do think we will make money on government bonds. That is why our duration stands at six years. We would look to go longer if yields rise a bit further at the long end. But right now, we’re in the belly of the curve.”
Ralph and Roberts believe we are close to – if not at – peak interest rates. However, they don’t believe yields will collapse which is “what some competitors are positioning for”, given their “very long duration numbers”.
“We think yields will hover around where they are now. And, if they do come down, they will only come down slowly because of the current supply dynamics,” Ralph says.
In terms of credit opportunities, she is positive on European telecoms, as the manager thinks their balance sheets will improve “significantly” over the next decade due to the completion of fibre network roll-outs.
“We also have a preference for senior financials,” Ralph adds. “This fits in with our idea that overall spreads aren’t massive ‘buys’, but that financials are fairly cheap relative to the rest of the market. We would rather play it safe in senior parts of the sector because overall spread dynamics aren’t hugely attractive. So, we are staying quite defensive.”
Next steps
Palomar Fixed-Income and its Global Strategic Bond fund is just the first launch for Nedgroup Investments’ multi-boutique platform, says Jeyarajah.
While the firm’s ‘Best of Breed’ list of funds houses eight sub-investment managers, Palomar Fixed-Income’s offering stands as the sole player on its new platform.
“We are always looking at what phase two looks like,” the chief commercial officer says. “We are always thinking about solving the next problem for clients, and what they are interested in.
“It is a process that we went through [with Palomar’s fund] – talking to clients around the design of the strategy to make sure it aligns with their needs.
“And, as a result of those conversations, we will do the same in the future, looking to grow and launch new boutiques that solve problems for investors.”
