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Next downturn in the Nordics will take a different shape as new type of investors emerge in corporate bond funds, says Coeli CIO

The Stockholm-based asset manager has tried to protect its own fixed income funds from abrupt outflows of capital in a downturn scenario by having a well-diversified investor base and by not participating in the price war, the EUR 1.9bn investment manager's CIO says.

Coeli AM Chief Investment Officer Erik Lundkvist Photo: PR / Coeli Asset Management/Rickard Kilström

In the Nordic region, the next downturn may look quite different from earlier downturns due to the new type of bond investors in Nordic corporate and high yield funds, says Coeli Asset Management Chief Investment Officer Erik Lundkvist.

In addition to Nordic retail and institutional investors, corporate and high yield bond funds have recently become more popular also among international investors wanting exposure to Nordic bonds, Lundkvist adds.

"There is much more non-Nordic capital in Nordic bonds than earlier. A lot of the investors who have recently started investing in Nordic corporate and high yield bonds have never lost money before. The situation may turn out quite complex if many of this sort of investors make sudden moves to pull out," Lundkvist says.

Managing downside risk

According to an analysis by trade body ICI Global fees for bond funds on an asset weighted measure fell from 0.98 per cent to 0.79 per cent between 2013 and last year. Furthermore, over the past five years, fixed income funds have seen fees on launches decline from 1.17 per cent to 0.91 percent, the FT reported in September.

Coeli has tried to protect its own fixed income funds from abrupt outflows of capital in a downturn scenario by having a well-diversified investor base and by not participating in the price war.

"This has led to a slower growth of the fund’s AUM, but in return it has enabled us to hold on to the concept of active management and a concentrated portfolio. This has been a crucial action to continue delivering truly competitive returns. Funds with large asset volumes tend to face major problems when flows turn the other way," Lundkvist says.

Coeli Asset Management, which established its corporate debt team in 2010, today manages assets worth approximately EUR 1.9bn in ten funds, two of which invest in fixed income.

New long-short impact equity fund to fill in a gap in the market

Coeli established the most recent addition to its fund family in August with the launch of its tenth fund. It is described as an impact hedge fund and goes by the name Coeli Energy Transition.is a daily traded long-short equity fund within the energy space. Coeli Energy Transition aims to take advantage of the increased volatility and dispersion in the energy sector caused by the disruption from alternative energy and the shift in public opinion against the fossil fuel industry.

The fund is committed to a negative exposure to fossil the fuel industry on a dollar basis.

"Numerous UCITS hedge funds focus on low and low to medium risk but there aren’t too many funds with medium and medium to high risk. Today a lot of people have the means to invest in liquid products but there aren’t many products with an impact angle so we are filling a gap in the market," Lundkvist says.

Going forward, Coeli will continue to grow its product offering selectively, focusing on new products from existing teams in both the open and close-end space. Coeli is working to supplement the offering in close end, which today consists of Nordic private equity and Nordic real estate with Nordic credits.

"We have seen an increasing demand for high quality closed products in the Nordic region during the past couple of years, both from retail and institutional investors,” Lundkvist says.

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