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US institutional investors embracing multi-asset credit strategies

Institutional investors in the US are increasingly turning to multi-asset credit strategies to capture alpha amid rising market volatility, according to a report by Pensions & Investments. 

Gregory Calnon, Partner and Co-Head of Public Investing at Goldman Sachs Asset Management, said: “The theme that we’re seeing is an acceptance of blurred lines with respect to investment management agreements.”  

He noted that this increased flexibility of investment management agreements was allowing portfolio managers to capitalise on short-term opportunities. 

Volatility in US rate cut expectations has driven shifts between high-yield bonds and bank loans, with Karin Anderson, Director, Credit Manager Research at Willis Towers Watson, observing a pivot towards high-yield bonds late last year, only to switch to bank loans this year as inflation data shifted rate cut expectations. 

Institutional investors face challenges in the form of “rebalancing separate high yield, bank loan and emerging market debt allocations overseen by different managers”, P&I reported. In response, the $104.2bn Massachusetts Pension Reserves Investment Management’s board recently approved $2bn in allocations to multi-asset credit strategies, to be funded mostly by existing allocations in high-yield bonds and bank loans. 

Jeremiah Lane, Partner at KKR and Portfolio Manager of its multi-asset credit strategy, observed that institutions like MPRIM were now more aware “that their decision-making process is long and there’s a lot of value to be had if you can move more quickly” in light of volatility brought on by the pandemic and 2022 Fed rate hikes. 

Mark McKeown, Managing Principal and Head of Fixed Income Research at Meketa Investment Group noted that changes in how US companies issue credit — moving beyond high-yield bonds to include bank loans and private credit — have contributed to the volatility that is drawing in institutional investors, with this diversification in turn creating more opportunities for skilled managers. He added that more companies were consulting with large buy-side asset managers instead of traditional sell-side banks when choosing credit. 

Earlier this month, Boston-based MPRIM’s investment committee recommended approximately $2bn in allocations to multi-asset credit managers: $600m to HPS Investment Partners; $500m to KKR’s diversified multi-asset credit strategy; $400m to Shenkman Capital Management; $300m to Anchorage Capital Advisors; and $200m to KKR’s relatively concentrated global credit opportunities fund. 

If approved, the fund’s allocations to high-yield bonds (1.5%) and bank loans (2%) will shift to multi-asset credit (2%), reducing the former two’s weightings by 1% each. 

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