Realm Fixed Income

We view the debt markets as one intertwined ecosystem, with regulators, issuers, financiers, consumers and businesses all playing their own part. When looking at the market a great deal of our emphasis is placed on keeping abreast of the broader environment and understanding the availability of capital as well as the movement of market liquidity.

We believe liquidity is a driver of credit markets and general economic activity, this view establishes our template for how we examine the flow of funds within credit markets. It is key to our process that we have a ground level anecdotal understanding of how the entire funding mechanism is operating and what the key issues within the system are as well as how they are impacting valuations.

We are able to gain this understanding through a grass roots involvement with regulators, industry bodies and regular contact with key stakeholders including issuers and ratings agencies. This provides us with a broad view of what is really happening and how pricing is responding to the market environment. This is subsequently cross referenced against our top down screen which seeks to identify risks on the horizon that will impact pricing and behaviour.

The critical factor is making this top down view relevant, and being able to connect it to the bottom up stock selection.

For that to be achieved this view has to be reconciled against how the domestic credit market is functioning. Bottom up analysis assists in qualifying our market view and is targeted at ensuring that the assets or risk positions in portfolios fit the appropriate risk return criteria. Our asset Selection process is fed by various inputs from market participants, government agencies, regulatory bodies, anecdotal experience from real economy participants, internal and external research, ratings agencies, and market peers.

Driving our research process is the pursuit and verification of the facts. We seek to include all of the available information to produce a fully informed picture. The Market intelligence process monitors and collects external views, reports and research to gauge the street view.

This rigor is continued into the assessment at an individual security level. The key considerations could be summarised as follows:

  • Character – Integrity of the firm
  • Capacity – Ability for the cash flows to service the business plan
  • Capital – The net worth of the entity
  • Collateral – The quality of the assets
  • Conditions – Of the borrower and the economy
  • Capital Structure – Optimal point of exposure

What cannot be escaped is that the top down assessment ultimately boils down to a decision around sector and security selection, consequently this portion of the process becomes absolutely critical. Understanding and pricing the macro environment effectively will mean very little if security selection is errant.