Damien Buchet

The Finisterre Emerging Markets Debt Total Return Strategy (Strategy), managed by Principal Finisterre, is now available to wholesale investors in Australia, capitalising on increased interest in emerging market debt.

The fund* which follows Finisterre’s EMD Total Return Strategy has received a coveted ‘recommended’ rating from Zenith. The Strategy’s total return approach, marked by active investment management and monitoring, devoid of index constraints, distinguishes it from conventional emerging market debt strategies.

Damien Buchet, Chief Investment Officer of Principal Finisterre, highlights the surge in investor interest, fuelled by positive market developments such as resilient emerging market growth, prudent risk pricing, and easing US financial conditions.

“Right now, we are a seeing a squeeze in terms of valuations which are positively impacting investors, allowing them to access the benefits of fixed income at potentially higher returns,” Mr Buchet said.

He also noted that there is a limited number of investment managers offering EMD solutions to Australian wholesale investors, placing the firm in a strong position as investor demand for emerging market debt continues to increase.

“Australian wholesale investors are increasing their exposure to overseas assets due to diversification desires, improved access to investment vehicles and heightened returns which now, more than ever before, are creating a highly diversified income stream for global investors,” Mr Buchet said.

“By strategically incorporating EMD, Australian investors gain access to the growth potential of developing nations, providing specialised diversification opportunities and potential long-term returns.”

“Australian investors could benefit when investing in emerging markets as the Australian Dollar has a natural correlation with local currencies in regions such as Latin America and Africa and is less impacted by the United States Dollar, which can help bolster returns while mitigating risk.”

“We invest based on our convictions and use all of the levers available when allocating capital including reviewing income opportunities, beta timing, alpha generation and the need for cash and defensive assets. This allows us to respond quickly to market changes such as elections and monetary policy shifts.”

Mr Buchet added, “Any unexpected shock to risk assets would be expected to reverberate through EMD as we saw in volatile periods during 2023 and in particular 2022. However, our Total Return approach will be well geared to ride out these periods of volatility.”

The Finisterre Emerging Markets Debt Total Return Strategy is managed by Principal Finisterre, a boutique firm owned by Principal Asset Management and is only available to wholesale and institutional investors.

*For wholesale investors only

Damien Buchet

Principal Global Investors®, a leading asset management firm with over US$576.8 billion in assets under management, today announced the launch of its new, total return emerging market debt (EMD) Fund specifically designed to meet Australian institutional investor demand for yield-oriented solutions. The Finisterre Emerging Market Debt Total Return Fund (the Fund) will be managed by Finisterre Capital (Finisterre).

“With this new fund, we are addressing the needs of the Australian institutional marketplace that sees EMD as an attractive investment. Emerging economies have coped with the pandemic reasonably well and we remain convinced that the role of EMD in investor portfolios is set to expand in the coming years,” said Damien Buchet, Chief Investment Officer for Finisterre Capital.

The Fund is designed to deliver income and capital gains while managing liquidity and limiting drawdowns during volatile market conditions. The Fund seeks to offer institutional investors more than 90% of EMD market upside for around half its volatility and less than 50% of its downside.

Beyond the use of an innovative process of risk allocation to five complementary risk/return buckets of EMD assets across the market cycle, another key feature of the Fund is its unique approach to hedging foreign exchange risk for Australian institutional investors. The Fund hedges 100% of the hard currency (U.S. dollar) exposure while leaving active local currency exposures unhedged versus the Australian dollar. This allows local investors to benefit from the Australian dollar’s positive correlation with emerging market currencies with the added protection against volatility associated with unwanted U.S. dollar risk.

The Fund has been seeded by Vision Super. Commenting on the announcement, Vision Super Chief Investment Officer Michael Wyrsch said, “We are excited by the opportunity and are looking forward to a long and productive partnership with Principal and Finisterre.”

Based in London, Finisterre is an internal investment management group of Principal Global Investors with an unrelenting focus on delivering investment solutions using various active EMD strategies.

“Our investing philosophy is completely index agnostic, truly unconstrained, and fully adapted to the efficient management of EMD, which has evolved to become an essential part of an investor’s toolkit,” Buchet said.

“Opportunistic, yield-oriented investments, which include EMD, complement a core fixed income portfolio and are designed to add diversification that balances risk and reward in a dynamic global environment.”

The Finisterre Total Return Emerging Markets Fixed Income Strategy (the same underlying strategy used in the Fund for Australia) was awarded the 2020 Emerging Markets Debt Strategy of the Year at Pension Bridge’s 2020 Institutional Asset Management Awards, further emphasising its success.

EMD as a compelling investment in recovering global economy

Principal Global Investors Managing Director and Head of Australia Helen de Mestre said local institutional investors see EMD as a compelling investment as the asset class continues to mature and looks increasingly favourable in today’s economic environment.

“The current market dynamics are driving Australian institutional investors to include EMD as a key component of a diversified portfolio that looks to boost long-term returns and generate yield,” de Mestre said. “In developing this new EMD fund, we consulted heavily with the local institutional marketplace to understand and service their needs in this dynamic economic environment”.

“We recognise that the pandemic continues to pose investment risks and, after one of the most volatile periods on record, institutional investors remain cautious. Our view is that some of the most compelling investment opportunities in fixed income are in emerging markets. The expertise of Finisterre is critical in helping investors through the active selection of EMD investments that enhance and complement core portfolios in a risk-controlled manner,” de Mestre added.

“We are pleased to receive the EM Debt Strategy of the Year award from Pension Bridge,” said Damien Buchet, chief investment officer and portfolio manager for Finisterre Capital, the PGI investment team that manages the award-winning strategy. “The investment process applied to this strategy has been historically effective in generating benchmark-beating, total returns by investing across the full spectrum of the EMD universe^[1], even during this current period of increased volatility across global markets.”

The Pension Bridge Institutional Asset Management Awards recognize and reward the institutional asset management industry for performance and excellence across various strategies. Using a quantitative and qualitative methodology, the judging was done in two stages. The first used purely quantitative elements to derive leader boards from the entries to populate the shortlists for each category. In the second stage, a panel of independent and impartial judges ensured the data was correct and used their knowledge and the qualitative elements of the entry process to decide the winners by category. All data used for the awards was through June 2020.

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[1] The Finisterre Total Return strategy has outperformed its benchmark (JP Morgan EM Equal Weight Index) as of each calendar year end, in six of the past seven years. Past performance is no guarantee of future results. JP Morgan EM Equal Weight Index (JEMBAGTR Index): 33.3% Corporate Emerging Market Bond Index Broad Diversification (CEMBI BD), 33.3% Emerging Markets Bond Global Diversification Index (EMBIGD), and 33.3% Government Bond-Emerging Market-Global Diversification Index (GBI EMGD)

]]> Principal Global Investors and its Finisterre Emerging Market Debt Total Return Strategy has been awarded the Emerging Markets Debt Strategy of the Year by Pension Bridge. The honour was announced on September 24 during a virtual ceremony to celebrate recipients of Pension Bridge’s 2020 Institutional Asset Management Awards.

“We are pleased to receive the EM Debt Strategy of the Year award from Pension Bridge,” said Damien Buchet, chief investment officer and portfolio manager for Finisterre Capital, the PGI investment team that manages the award-winning strategy. “The investment process applied to this strategy has been historically effective in generating benchmark-beating, total returns by investing across the full spectrum of the EMD universe^[1], even during this current period of increased volatility across global markets.”

The Pension Bridge Institutional Asset Management Awards recognize and reward the institutional asset management industry for performance and excellence across various strategies. Using a quantitative and qualitative methodology, the judging was done in two stages. The first used purely quantitative elements to derive leader boards from the entries to populate the shortlists for each category. In the second stage, a panel of independent and impartial judges ensured the data was correct and used their knowledge and the qualitative elements of the entry process to decide the winners by category. All data used for the awards was through June 2020.

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[1] The Finisterre Total Return strategy has outperformed its benchmark (JP Morgan EM Equal Weight Index) as of each calendar year end, in six of the past seven years. Past performance is no guarantee of future results. JP Morgan EM Equal Weight Index (JEMBAGTR Index): 33.3% Corporate Emerging Market Bond Index Broad Diversification (CEMBI BD), 33.3% Emerging Markets Bond Global Diversification Index (EMBIGD), and 33.3% Government Bond-Emerging Market-Global Diversification Index (GBI EMGD)

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