The $13 billion multi-manager ipac has divided its $2.8 billion fixed income portfolio into six sources of risk, in an attempt to assert more control over them, and has signed four new mandates in the process.  In the restructure, ipac moved to disaggregate the various elements of credit risk – real rate, term, credit, inflation, currency and liquidity risks – and seek exposure to these factors discretely in attempts to meet the return objectives of its diversified portfolios.  Jeff Rogers, CIO at ipac, said the overhaul should enable the multi-manager to “take more ownership of the strategic positioning” of the portfolio.

This followed moves by other large institutions, such as MLC, to re-design fixed income portfolios to gain more control over asset allocation decisions amid changes in the structure of debt markets and benchmarks. Under the old structure, ipac’s fixed income portfolio allocated to four sectors: domestic bonds, global bonds, alternative income and cash. Now the multi-manager allocates to three sectors: government bonds, comprised of Australian and global sovereign debt, plus domestic inflation-linked bonds (ILBs); multi-strategy fixed interest, containing absolute return and fixed income strategies; and cash. These changes saw ipac award a series of new mandates.

Morgan Stanley gained $738 million for its global corporate bonds strategy; Kapstream Capital was given charge of $228 million for an absolute return allocation; Old Mutual gained a $114 million global sovereign bonds mandate; and Antares was awarded a $90 million ILB mandate. Global fixed interest mandates with BlackRock and AllianceBernstein were terminated. James Murray, senior investment manager at ipac, said the new structure aimed to clearly demarcate risks in fixed interest markets, and enable the multi-manager to use these exposures as asset allocation “levers” to better meet the return objectives in its diversified funds. To counter the effects of increased sovereign issuance in the developed economies, ipac also adopted new benchmarks for the portfolio.

Rogers said the structure of global bond benchmarks would likely change as deeply indebted governments, such as the US and Japan, issued longer-dated debt at low interest rates. This made the use of market-capitalisation benchmarks inappropriate because the risk exposures within them were determined by debt issuers. “Market-cap indexes never made a lot of sense. But looking forward, it makes less sense,” Rogers said. “Let’s set our own benchmark. Let’s make sure it’s pretty stable and not whipped around by issuance and take a bit of duration out of the portfolio.

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