Salt Funds Management has seeded a new Morgan Stanley-run sustainable global bond product with about $60 million sourced from both external clients and in-house strategies.
Officially launched last Friday, the Salt Sustainable Global Fixed Income Opportunities Fund has attracted support from a range of wholesale investors, according to head of client partnerships, Greg McMaster.
“We’ve seen interest from philanthropic clients, iwi, charities and super funds looking for a sustainable international fixed interest solution,” McMaster said.
The new strategy also replaces the Hunter Global Fixed Interest Fund in the two Salt diversified funds open to both retail and wholesale investors. Salt appointed the-now Harbour Asset Management-owned Hunter, which has PIMCO as underlying manager, as the global fixed component of its sustainable growth and income diversified products released in 2021.
Salt turned to its global shares partner, Morgan Stanley Investment Management, to also manage the sustainable fixed income portfolio in a strategy first launched by the UK arm of the firm in 2020.
In a note to investors, Salt says: “We have high confidence that Morgan Stanley Investment Management have an industry-leading methodology for integrating sustainability factors into investments, coupled to the global scale and reputation needed to engage effectively with government, intergovernmental, and corporate issuers. Fixed Income investors are now playing a more prominent role in driving dialogue and engagement with bond issuers, to raise momentum towards positive change.”
McMaster said the fund has a minimum allocation of 15 per cent to ‘green bonds’ with several environmental, social and governance (ESG) risk screens, a strong tilt to sustainable outperformers (corporates and sovereigns) and a focus on positive outcomes – particularly on low carbon emissions.
“The fund has about 75 per cent less carbon exposure than the global aggregate benchmark,” he said.
But the Morgan Stanley-managed bond fund is also a sharp departure from the popular index and benchmark-aware global fixed income portfolios that have broad market exposure.
Currently, the Morgan Stanley fund holds about 200 securities versus the 10,000 plus in the Bloomberg Barclays Global Aggregate Bond Index.
In a paper accompanying the product launch, Salt head of global diversified funds, Greg Fleming, argues that the “the main global bond benchmarks in common use have deteriorated and become historical artefacts, kept in use mainly through an excessively conservative view as to where risks to markets and to humanity truly lie in the decades ahead”.
“By contrast, being unconstrained by a benchmark allows the better funds to focus on delivering consistent, uncorrelated returns from various sources of Alpha – which also reduces market directional risk,” Fleming says.
The Salt sustainable global fund is a fully-hedged NZ dollar portfolio investment entity with an annual management fee of 0.45 per cent.