IFM offers debt investment products across the risk reward spectrum, from the top end of investment grade through to high yield debt. In that range, we offer two broad groups of product, with a clear distinction made between those that add value through taking on credit risk and those that manage liquidity risks.
While we understand and manage all sources of risk, we focus on adding value through taking on credit risk and, at the short end, closely managing liquidity. This is in contrast to a traditional fixed interest approach that highlights taking interest rate risk positions to add value (even though interest rates are often the lesser risk). When compared to conventional fixed interest approaches, IFM’s debt investment products are niche pure-plays that are complementary to other fixed interest products and other asset classes, rather than substitutes.
IFM’s philosophy, that credit risk is a larger contributor to both risk and reward, dates back to the conception of the IFM Alternative Fixed Income Funds in 1999. This product has since been complemented by the creation of two more IFM credit alternative products which go further into high yield territory with a specialisation in structured credit assets.
However, IFM also recognises that high yield debt investments can sometimes appear attractive to investors largely on the basis of the headline returns offered, even though their ‘tail risks’ - which are not fully described by credit ratings, for example - may not be properly understood by the investor. IFM strongly believes that these investments are only suitable for those investors who understand that there are less visible, dormant risks forming part of the risk and reward proposition offered by these securities. Thus, our higher yielding alternative credit products are offered in the knowledge that IFM’s investors take the long term view, are steady in their strategic asset allocation and are capable of riding out shorter term fluctuations.
At the other end of the risk-reward spectrum, in investment grade space, IFM believes that the dormant risks and behaviour of ‘traditional fixed income’ are also frequently misunderstood by investors who sometimes look to fixed interest as a defensive asset class that offers liquidity for all market conditions. As a result, IFM, for the most part, does not operate in conventional investment grade fixed interest markets but concentrates on liquidity products. This strategy recognises that the only true defensive asset is cash, or cash variants, as invested by the IFM Cash Funds.