Our high-yield team employs a widely accepted, value-oriented fundamental investment process that originated, rather uniquely, as part of a value equity group in the 1990s. The team is structured as a practical partnership of experienced co-portfolio managers working in close collaboration with talented, fundamental credit analysts. Our disciplined and collaborative team approach aims to create a strong, focused credit culture.
Our full investment process
We believe the optimal, risk-adjusted investment process combines both dynamic fundamental, bottom-up credit selection, with continuous top-down portfolio risk management systems. Our investment process is depicted graphically below for illustrative purposes only:
- Defining the investable universe via a minimum yield spread, and minimum issuer size:
- Minimum yield spread of 200 basis points over the comparable US Treasury note (one basis point is equivalent to 0.01%).
- Minimum issuer size is typically US $150 million.
- Minimum margin-of-safety requirements, quantified and stringently applied:
- Excess asset coverage defined as ‘real world’ asset value relative to gross debt.
- Positive ‘normalized’ free cash flow (not returned to shareholders).
- Qualitative fundamental corporate assessments to further safeguard against default risk:
- Criteria includes competitive position of business, management competency, environmental, social and governance factors, and bond-specific attributes including protective covenants, relative priority and capital structure.
- Catalysts for total return from price appreciation driven by credit improvement:
- Average/normalized free cash flow above 5% of gross debt:
- Corporate restructuring, commonly from strategic operational improvements.
- Financial restructuring, including raising equity or debt restructuring.