It’s Time to Add Bonds, CEO of $50 Billion Impax Funds Says
(Bloomberg) -- Impax Asset Management wants to considerably beef up its credit exposure as the $50 billion London-based investor tries to persuade clients a more diversified revenue base will help revive growth.
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“As we move from 100% equities to something that’s more like 50-50” in terms of the split between equities and credit, “then we are obviously convincing the market over time slowly that we’ve got the capability to do both,” Ian Simm, the chief executive officer of Impax, said in an interview.
As an asset manager, having more than 90% in equities has “been fine in certain market conditions,” Simm said. But there are “certain market conditions where it’s not fine.” A spokesperson for Impax, which is a publicly traded company, said separately that the 50-50 split doesn’t constitute an explicit target.
The decision to reconfigure its revenue streams follows an extended period during which Impax has seen investors redeem cash amid below-average fund returns. The asset manager, which is best known for its embrace of strategies that favor the net-zero transition, has seen its share price plunge more than 70% since the beginning of 2022.
ESG credit funds are currently attracting more money than their counterparts focused on equity, according to fresh research by Morningstar Inc. In Europe, flows into ESG fixed-income funds totaled $13.4 billion in the third quarter, compared with the $3.2 billion that went into ESG equity funds. And in the US, ESG equity funds “continued bleeding money,” while flows into bond funds jumped sevenfold to $724 million, Morningstar said.
“Elevated interest rates make fixed-income investments more attractive as they offer better returns with lower risk compared with equities,” the authors of the report wrote.
A Gradual Shift
To build up the client base for new fixed-income products, Simm says Impax can’t do a major shift into credit “overnight.” Instead, his expectation is it may take somewhere between five and 10 years, allowing Impax time to move from its current exposure to equities of more than 90% of the total portfolio “to probably 60%, or even less than 50% equities,” he said.
Simm says part of Impax’s underperformance in recent years stems from its failure to latch on to the huge gains in Big Tech, a cycle it largely sat out. The asset manager took advantage of a decline in the share price of Nvidia Corp. in June to purchase shares of the company, Simm said.