Global Rates Strategy ESG Policy
Introduction
Investcorp-Tages has implemented an Environmental, Social and Governance policy which will apply at both firm level and in respect of its investment management activities when investing on behalf of its clients.
The purpose of this policy document is to explain the Global Rates Strategy’s sustainability principles and approach to integrating ESG risks and opportunities into its investing decisions.
Global Rates approach to ESG Integration
The Global Rates strategy has a global mandate, focusing primarily on the major developed market economies, with opportunistic exposure to large, mature emerging market economies. The investment universe therefore focuses on highly liquid markets. Liquid markets in sovereign fixed income instruments and currencies (and derivatives thereof) are typically associated with issuers (in this case sovereign nations) exhibiting characteristics of good governance, rule of law and an established institutional and regulatory framework, supportive of deep and functioning markets. To the extent that Governance and liquidity tend to be correlated, Governance is therefore an indirect consideration in defining the strategy’s investment universe.
The manager seeks to exclude economies (and therefore instruments related to those issuers) where liquidity might be adversely impacted, relative to the strategy’s mandate.
The manager continuously monitors liquidity and depth per instrument and per asset class by observing spreads, Average Daily Volumes, open interest, bond ratings, CDS spreads and barriers to local markets among other indicators. Portfolio liquidity is independently monitored by the Chief Risk Officer and Risk Committee. As a guide, we estimate that under normal market conditions, if necessary, all the Fund’s assets could be liquidated within 48 hours with minimal price impact on the underlying investments, thus ensuring that the underlying instruments are consistent with issuers that enable good governance and therefore support liquidity of their related markets and instruments.
The manager may express negative views through short positions on economies where they feel the outlook for sustainable growth is deteriorating, among other factors.
As per their investment philosophy, the manager believes that fixed income and currency markets are driven by economic fundamentals and the investment objective focuses on identifying real market drivers and capturing those shifts to successfully add alpha.
Bespoke Mandates
Bespoke mandates can be tailored to incorporate ESG considerations as per clients’ individual requirements. For example, the team can incorporate baseline ESG criteria and conduct both qualitative and quantitative ESG analysis, subject to the demands of individual mandates.
Where required, Environmental, Social and Governance analysis of economies can be applied to the relevant fixed income and currency instruments as necessary. For example, US Treasury bills (corresponds to the USA), UK Gilts (corresponds to the UK), and USD/CAD currency forwards (corresponds to USA and Canada).
Transparency
The Global Rates strategy provides full transparency to clients on the investment process, liquidity, risk management and the underlying portfolio.
Engagement
Engagement with policymakers allows scope for activism. Policymakers often seek feedback on how their policymaking is received by market participants during roadshows to launch sovereign bond offerings. The manager uses these opportunities to relay feedback, where appropriate.
ESG Governance
The manager also makes available the results of their ESG analysis related to bespoke ESG mandates to the Investcorp-Tages ESG Group (“ESG Group”). The ESG Group is tasked with ensuring that –
a) The Firm determines appropriate corporate policies and procedures related to ESG;
b) The Firm implements and supports a pro-active ESG culture across the Firm;
c) The Firm promotes and monitors ESG engagement by counterparties and underlying managers;
d) The Firm promotes communication of ESG initiatives to stakeholders and clients;
e) The Firm completes the PRI, or equivalent, annual reports on a timely basis.
The ESG Group shall escalate unresolved issues to the ExCom and, conversely, shall respond to any requests for information or action by the ExCom.