This session examined the growing debt burden, borrowing from the future, and the impact on markets, the economy and asset class returns.[vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Rich%20Randall%22%2C%22job_role%22%3A%22Global%20head%20of%20debt%2C%20IFM%20Investors%20(United%20States)%22%2C%22content%22%3A%22Rich%20Randall%20is%20responsible%20for%20the%20creation%20and%20management%20of%20IFM%20Investors%E2%80%99%20debt%20investments%20strategies%20and%20portfolios%2C%20and%20for%20the%20debt%20investments%20team%20globally.%20He%20also%20heads%20IFM%20Investors%E2%80%99%20North%20American%20debt%20investment%20business.%20Based%20in%20New%20York%2C%20he%20has%20more%20than%2020%20years%20of%20experience%20in%20originating%2C%20analysing%2C%20structuring%20and%20arranging%20debt%20facilities%20for%20large%20infrastructure%20projects.%20His%20experience%20includes%20fixed%20and%20floating%20rate%20debt%20instruments%20across%20a%20broad%20credit%20and%20industry%20spectrum%2C%20and%20he%20has%20a%20specialty%20in%20the%20US%20energy%20sector%2C%20which%20is%20the%20primary%20source%20of%20infrastructure%20debt%20issuance%20in%20North%20America.%20Randall%20joined%20IFM%20Investors%20after%2010%20years%20with%20RBS%2C%20where%20he%20was%20head%20of%20project%20finance%20in%20North%20America.%20He%20also%20managed%20and%20was%20responsible%20for%20the%20bank%E2%80%99s%20%243%20billion%20portfolio%20of%20infrastructure%20investments.%20Prior%20to%20RBS%2C%20he%20spent%20nine%20years%20with%20Credit%20Agricole%20(Credit%20Lyonnais)%20as%20a%20senior%20banker%20structuring%2C%20analysing%20and%20underwriting%20project%20finance%20debt.%22%2C%22image%22%3A%2244345%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Frichard-randall-73576150%2F%22%7D%5D” title=”Speakers” el_class=””][vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Colin%20Tate%20%22%2C%22job_role%22%3A%22Chief%20executive%2C%20Conexus%20Financial%20(Australia)%22%2C%22content%22%3A%22Tate%20has%20been%20an%20investment%20industry%20media%20publisher%20and%20conference%20producer%20since%201996.%20In%20his%20media%20career%2C%20Tate%20has%20launched%20and%20overseen%20dozens%20of%20print%20and%20electronic%20publications.%20He%20is%20the%20chief%20executive%20and%20major%20shareholder%20of%20Conexus%20Financial%2C%20which%20was%20formed%20in%202005%2C%20and%20is%20headquartered%20in%20Sydney%2C%20Australia.%20The%20company%20stages%20more%20than%2020%20conferences%20and%20events%20each%20year%20%E2%80%93%20in%20London%2C%20New%20York%2C%20San%20Francisco%2C%20Los%20Angeles%2C%20Amsterdam%2C%20Beijing%2C%20Sydney%20and%20Melbourne%20%E2%80%93%20and%20publishes%20five%20media%20brands%2C%20including%20the%20global%20website%20and%20strategy%20newsletter%20for%20global%20institutional%20investors%20conexust1f.flywheelstaging.com.%20One%20of%20the%20company%E2%80%99s%20signature%20events%20is%20the%20bi-annual%20Fiduciary%20Investors%20Symposium.%20Conexus%20Financial%E2%80%99s%20events%20aim%20to%20place%20the%20responsibilities%20of%20investors%20in%20wider%20societal%2C%20and%20political%20contexts%2C%20as%20well%20as%20promote%20the%20long-term%20stability%20of%20markets%20and%20sustainable%20retirement%20incomes.%20Tate%20served%20for%20seven%20years%20on%20the%20board%20of%20Australia%E2%80%99s%20most%20high%20profile%20homeless%20charity%2C%20The%20Wayside%20Chapel%3B%20and%20he%20has%20underwritten%20the%20welfare%20of%2060%2C000%20people%20in%2028%20villages%20throughout%20Uganda%20via%20The%20Hunger%20Project.%22%2C%22image%22%3A%2244341%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Fcolin-tate-839a5a181%2F%3ForiginalSubdomain%3Dau%22%7D%5D” title=”Moderator” el_class=””][vc_empty_space height=”10px”]
Key takeaways
The unprecedented level of government debt signals sub-par economic growth ahead.
Debt involves borrowing from the future, and all studies show that countries that have high levels of debt have lower rates of GDP growth.
Government bonds are no longer a defensive asset: the downside risk of holding government bonds has increased and the negative correlation with equity reversed.
Investors have found opportunities in corporate debt in the wake of bank disintermediation since the GFC. Banks have ceded much of their lending in developed markets to the capital markets. However, private assets hold illiquidity risk as opposed to tradeable government bonds.
Companies that were hanging on before the pandemic and that got rescued will now face a reckoning. Service-type companies are over-leveraged, and airlines are also highly leveraged. Fallen angel opportunities exist as investment grade companies fall into the sub-investment grade market.
Debt capital provided by non-banks in US and Europe is developed, but in Asia only around 10 per cent of debt capital is provided by non-bank institutions.
Private corporate debt opportunities in emerging markets are limited because of the accompanying volatility. There is also a supply and demand imbalance given banks’ role in providing capital.
The big difference between the vaccine rollouts and the scale of the stimulus measures across the world could result in a K-shaped global economic recovery, with much of the developed world booming but poorer countries continuing to struggle. However the
With hopes of a sharp rebound from the pandemic-induced recession quickly fading, policymakers should pause and take stock of what it will take to achieve a sustained recovery.
The technology already exists to make the due diligence process when selecting and monitoring managers more efficient, less arduous and highly productive.
Insights into private markets and venture may provide a real competitive edge for asset managers in demonstrating to investors an understanding of innovation and disruption and how this affects public market portfolios
Driven by active return, AP4 produced a stellar 9.6 per cent in 2020. But its chief executive, Niklas Ekvall remains cautious about the economic outlook and its impact on the portfolio, especially with regard to inflation.
USS's head of dynamic asset allocation Bruno Serfaty reflects on the inflation risk coming down the track, and suggests ways investors can build alternative liability matching portfolios beyond government bonds.
In this episode Amanda White talks with engagement specialist at Robeco, Peter van der Werf, about the importance of engagement; what good engagement looks like; and what financially material sustainability themes are important right now.
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