Credit at Cardano
An interview with Justin Hatch, Head of Credit
In November 2021, Justin Hatch joined Cardano to strengthen our internal credit capabilities. Justin’s first task is to develop the core of Cardano’s cashflow portfolios focusing on investment grade credit. This will complement our existing capabilities in Liability Driven Investing.
Investing in corporate bonds is not about picking the winners, it is about avoiding the losers
“It was the opportunity to build up an internal credit desk with a dedicated focus on meeting the needs for DB schemes. For me this is a path that is well travelled. Starting again from scratch allows me to make improvements based on my past experiences”.
An important matching asset for maturing DB schemes
Over the last couple of years many DB schemes have narrowed their funding gap and are now considering their endgame. “As a scheme’s required rate of return decreases it is a good idea to transition the asset allocation from diversified return seeking assets, towards a greater use of cashflow matching assets.” Corporate bonds and other similar credit assets also provide a mixture of liability matching and excess return over government bonds.
The main difference between credit and equity investors is that a credit investor focuses on the downside while an equity investor mainly focuses on the upside. “Investing in corporate bonds is not about picking the winners, it is about avoiding the losers”. This explains why credit markets typically show the first sign of market distress, before it is reflected in the stock market.
“For the last decade, credit spreads and yields have been supported by the Central Banks’ quantitative easing and purchasing programs. As interest rates increase and liquidity is removed from the system, there will undoubtedly be more volatility, but this will also create investment opportunities at attractive levels.” Justin thinks large flows of pension money into the credit market, for the next decade, will limit any fundamental increase in credit spreads and the market remains technically well supported by a broad range of investors.
How can we help you?
If you are thinking about the endgame for your scheme and what could be done to de-risk your strategy, don’t hesitate to contact us. We can help you with providing a safe journey towards endgame for you and your members.