Institutional mandates to fixed income assets have become increasingly more specific, as investors take control of their risk exposure to this sector.
In the past, managers were often given broad mandates that gave them the flexibility to allocate relatively freely among the various fixed income asset classes, according to bond manager Kapstream.
But investors are increasingly pulling apart the different asset classes and specifying their desired exposure to each of them.
"A lot of it has [sprouted] from the crisis when many people were caught off guard when their fixed income portfolios didn't behave like a true fixed income portfolio, in the sense that it wasn't really a defensive allocation," Kapstream Capital managing director Nick Maroutsos said.
"What people have done is adopt more of a wheel-and-spoke approach, where they have that core sovereign portfolio or core government portfolio and then they allocate strategically to various asset classes with fixed income around it."
The core portfolio can consist of global or domestic government bonds, and additional exposure is allocated to asset classes including credit, emerging market debt and high-yield assets.
"The superannuation companies and [asset] consultants are looking to put a little more risk controls around those strategies," Maroutsos said.
Tyndall head of fixed income Roger Bridges said consultants were increasingly looking for low-risk fixed income portfolios.
"Before the GFC (global financial crisis) many consultants were attracted by claims by many fixed interest managers that they could provide 'equity-like returns'," Bridges said.
"This was largely achieved by credit and leverage. Unfortunately, with the return came 'equity-like risk'.
"It does not surprise me if clients are looking to break these up if it allows the manager too much leeway."
Tyndall had not experienced much change in the mandates awarded to it, partly because it had always stuck to the traditional role of fixed income as a defensive asset class, but it had experienced more interest in its approach, he said.
"The fact that our risk-conscious process is getting a lot of airplay shows clients are returning to see fixed interest as a defensive product that requires careful monitoring," he said.
