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.

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Exclusively designed for the CoreSeries Portfolios on BT Panorama, the fund is structured as a separately managed account (SMA) solution. Currently, BTIS has in excess of AU$1 billion in FUM as of May 2021 across multiple GREIT strategies allocated to Principal.

Commenting on the new mandate, Principal Global Investors Managing Director and Head of Australia Helen de Mestre said the recent GREIT rally indicates the strong outlook for the sector in line with the global economic recovery.

“We’re delighted to be working with BTIS, whom we have a long-standing relationship with, in order to service retail clients,” Ms. de Mestre said. “Our investment philosophy focuses on quality and growth with a strong emphasis on thematic tailwinds. Global listed property remains an attractive, risk adjusted investment opportunity as the structural challenges in the sector (as seen through the significant dislocation in GREIT valuations in the past year) provides a perfect market for active managers to capture alpha as part of a diversified portfolio.”

The Principal Global Real Estate Securities strategy aims to outperform the FTSE EPRA Nareit Developed (Net) Index and is focused on exploiting mispricing at a stock level by conducting detailed, bottom-up fundamental research and identifying where expectations differ from consensus. This process results in a portfolio with quality names that produce superior net operating income, net asset value growth, and capital appreciation.

BTIS Head of Equities James McSkimming said, “Our partnership with Principal exemplifies our commitment to having managers that bring differentiated characteristics suited to the single manager profiles like the fund.”

CoreSeries offers six objective based portfolios designed to meet the needs of a wide range of clients and aims to offer access to quality investments in a transparent and attractively-priced structure.

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Based in Sydney, Mr Boys will report to Helen de Mestre, Managing Director and Country Head for Principal Global Investors (Australia) Limited, and will work alongside Michael Gaffney, who has been Principal’s Director of Institutional Sales since 2016. Mr Boys will share Mr Gaffney’s mandate to develop new business opportunities and to work with institutional investors and their consultants to deliver world-class investment solutions, as well as increasing Principal Global Investors’ market share in Australia and New Zealand across their range capabilities.

“I’m delighted that Warwick, an experienced, high-performing institutional sales director, has joined the team,” said Ms. de Mestre. “He brings to the role a strong track record of building long-term relationships with institutional investors and their advisers, and an exceptional reputation in the market. The Australian and New Zealand institutional market is a key area of focus for Principal, and I have confidence in his ability to help grow the business,” she added.

Mr Boys has worked in financial services for over 25 years, most recently heading up institutional sales for Perpetual Investments and Fidelity International. At Fidelity, he represented Fidelity’s offerings across all asset classes, and was responsible for helping define the strategic direction of the global institutional business. He is well-known and respected in the market, and was instrumental in growing Fidelity’s institutional business.

“Principal has a wide range of high-quality, high-performing investment capabilities – in particular, real estate (across the four quadrants of private/public debt and equity), global fixed income, alternatives and global equities,” said Mr Boys.  “I am really excited about the opportunity of working with a world-class, global investment firm to support our institutional investors and identify solutions to help them achieve their ultimate objectives.”

In addition to Mr Boys’ appointment, Principal Global Investors in Australia has further strengthened its institutional distribution capability by appointing Ryan Kilroy to the role of Sales Support Manager in January of this year. Mr Kilroy joins from Macquarie Group, where he worked closely with institutional and business banking clients, most recently as an  Associate Manager in the Wrap Adviser Service team.

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