Danish investors looking to add emerging market corporate debt

Tell Media Group, in co-operation with Blackrock, First State Investments and Erste Asset Management, recently hosted a roundtable event with Danish institutional investors and manager selectors to discuss emerging market debt. This is a summary of that discussion.

Michael Bødker, portfolio manager and part of the team responsible for credit investments at the Danish pension company Danica Pension, said that the team had been involved in emerging market debt for a long time. “It’s a decent size of the portfolio now and it will likely increase over time. Our exposure to emerging markets on the fixed income side is split between hard currency and local currency and we don’t have any exposure to corporate debt right now. That’s, however, something we’re looking into,” he said.

Anders Ellegaard, a portfolio manager at Industriens Pension, said that they are also looking to add emerging market corporate debt to its portfolio. “We’ve been following the corporate debt market and we might add a pure corporate mandate going forward,” he said. 

When asked for the reasoning of adding dedicated corporate debt managers going forward, Michael Bødker said: “I think it’s simply the next step. It’s part of the emerging market universe and it’s a growing asset class. We have different strategies for hard currency and local currency and we can tilt the allocation between them. We would then probably add a dedicated corporate debt mandate to that overall allocation.”

Péter Varga, responsible for emerging market corporate bonds at Erste Asset Management, stated: “We had similar client conversations earlier this year where our clients explained that they would like to build up exposure to emerging markets but were slightly hesitant to add corporate debt because they perceived it to be more risky compared to sovereigns. This led us to do some internal research on the topic. The conclusion was the opposite of what people usually would expect: the headline spread and yield is higher for the emerging market bond index because of Venezuela, Argentina, Ecuador and Lebanon. Also, the interest rate sensitivity is higher. Stripping out the defaulted Venezuela, the corporates allocation provides you with more spread and with less rate sensitivity. That goes to show that the perceived safe allocation to emerging market sovereigns might not be that safe after all.”

Apart from discussing new additions to their portfolio, the participants also covered topics such as ESG, the benefits of blended mandates, the importance of local investors and the growth of China. The roundtable discussion was published in issue 04 of Nordic Fund Selection Journal and a PDF of the story can be found here.