Plan sponsors are increasingly starting to view fixed income as a return-boosting investment rather than just a liability managing tool. There is a clear case for actively managed corporate bonds — whose five-year returns have been stronger than actively managed index-linked or gilt investments — as well as absolute return bond investments, says Nicola Ralston, a director at the U.K.’s PiRho Investment Consulting.
The U.K.’s Lincolnshire County Council Pension Fund recently tendered for an absolute return bond manager and will be making an appointment in the near future. The move came on the heels of a study that determined the fund should split fixed-income assets between a passive and an absolute return mandate to balance beta with alpha generation, says financial advisor Jo Ray.
APG Asset Management, the administrator for the Dutch pension giant Stichting Pensioenfonds ABP, has also been gradually increasing exposure to absolute return strategies. The group incorporates absolute return bond allocations not only into hedge funds and global tactical asset allocation commitments, but also into its fixed-income portfolio as a source of alpha, said Gerlof de Vrij, head of global tactical asset allocation at APG. “The fixed-income market is liquid and well developed, with lots of themes to be played, so there are plenty of opportunities for absolute return.”
— Global Money Management
