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Securitized credit offers substantial opportunities reflecting misunderstood or mispriced risk.
Securitised credit can be a beneficial addition to a portfolio for four main reasons:
Yield pick-up – can offer a yield premium compared to traditional fixed income instruments
Floating rate exposure – investors can benefit from rising rates. With current rates at historical lows, securitised credit, which is largely floating rate, is well-positioned to potentially outperform traditional fixed income instruments
Credit enhancement and alignment of interests – many newer issues (post financial crisis) have structural features that can enhance investor protection (such as tighter covenants and greater overcollateralisation)
Diversification – securitised credit has low correlation to other fixed income asset classes and can increase portfolio diversification
We invest in all securitised credit sectors, across all rating categories and do so “globally” from one platform in London. Our global scale and investment tools support:
The ability to determine relative value and assess risk across markets
A seamless capacity to invest where we are finding best opportunities
Access to significant trading flows where we can use our relationships and size to negotiate attractive prices for clients
An established and experienced team of 15 dedicated specialists, forms one of the largest structured credit teams in the industry
Significant market access to a wide range of structured credit opportunities which is not easily replicated in the structured credit space
Our global reach differentiates us from many competitors that focus purely on US and/or European ABS
What are some of the risks?
The investment characteristics of securitised credit differ from traditional debt securities. The major difference is that the principal is often paid in stages and may be fully repaid at any time because of the terms of the underlying loans. This variability in timing of cash flows makes estimates of future asset yield and weighted average life uncertain. There may also be specific risks involved when investing in securitised credit, including pre-payment risk, subordinated risk, capital value risk, economic risk, re-financing risk and liquidity risk.
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested.
Interest rate risk. As interest rates rise debt securities will fall in value. The value of debt is inversely proportional to interest rate movements.
Credit risk. Issuers of debt securities may fail to meet their regular interest and/or capital repayment obligation. All credit instruments therefore have the potential for default. Higher yielding securities are more likely to default.
Exchange rate risk. Investing in assets denominated in a currency other than that of the investor’s own currency perspective exposes the value of the investment to exchange rate fluctuations.
Asset backed securities (ABS) risk. ABS are typically constructed from pools of assets (eg mortgages) that individually have an option for early settlement or extension, and have potential for default. Cash flow terms of the ABS may change and significantly impact both the value and liquidity of the contract.
Derivative risk. The value of derivative contracts is dependent upon the performance of an underlying asset. A small movement in the value of the underlying can cause a large movement in the value of the derivative. Unlike exchange traded derivatives, over-the-counter (OTC) derivatives have credit risk associated with the counterparty or institution facilitating the trade.
High yield risk. Higher yielding debt securities characteristically bear greater credit risk than investment grade and/or government securities.
Liquidity risk. Liquidity is a measure of how easily an investment can be converted to cash without a loss of capital and/or income in the process. The value of assets may be significantly impacted by liquidity risk during adverse markets conditions.
Operational risk. The main risks are related to systems and process failures. Investment processes are overseen by independent risk functions which are subject to independent audit and supervised by regulators.
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. The value of the underlying assets is strongly affected by interest rate fluctuations and by changes in the credit ratings of the underlying issuer of the assets.
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Terms and conditions
This Site is intended for Institutional Investors in Hong Kong only.
The Funds invest in various investments, such as equities, bonds, money market instruments, collective investment schemes and alternative investments. Each fund has a different investment objective and risk profile.
The Funds may subject to the risks of investing in emerging markets and smaller companies; and may subject to the concentration risks when the investments are concentrated in one or a small number of markets or sectors.
The Funds may invest in non-investment grade bonds, unrated bonds, contingent convertible securities, mortgage backed securities, asset backed securities and urban investment bonds issued by PRC local government financing vehicles (LGFVs) which are subject to additional risks and volatility.
The Funds may have substantial investments in securities issued by a single sovereign issuer (including but not limited to issuer with a non-investment grade credit rating) and are subject to higher concentration risk, sovereign risk and credit risk.
The Funds may gain exposure to hedge fund, absolute return strategy, private equity, real estate sector and Real Estate Investment Trust (REIT) which are subject to additional risks and volatility.
The Funds may invest in onshore Chinese securities through various market access schemes and China A-shares Access Products. Such investments involve additional risks, including the risks associated with China's tax rules and practices.
When investing in Indian bonds, the Funds may need to comply with the licensing regulations in India and may subject to additional risks, including quota restrictions and tax risks.
The Funds may invest in other funds and need to bear the underlying funds' fees and expenses on top of the Funds' own fees and expenses.
The Funds may invest in financial derivative instruments for investment purpose which may lead to higher volatility to their net asset value.
The Funds may pay dividends out of capital or gross of expenses. Dividend is not guaranteed and may result in capital erosion and reduction in net asset value.
Because the Funds' base currency, investments and classes may be denominated in different currencies, investors may be affected adversely by exchange controls and exchange rate fluctuations. There is no guarantee that the currency hedging strategy applied to the relevant classes will achieve its desired result.
Investing in money market funds are not the same as placing funds on deposit with a bank or deposit taking company. The Funds which are money market funds have no obligation to redeem units at their offering value and such Funds are not subject to the supervision of the Hong Kong Monetary Authority. Investors may not recoup the original amount invested in the Funds.
The Funds' investments may involve substantial credit, currency, volatility, liquidity, interest rate, tax and political risks. Investors may suffer substantial loss of their investments in the Funds.
The Funds are NOT equivalent to time deposits. Investors should not invest in the Funds solely based on the information provided herein and should read the offering document of the Fund for details.
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