Aberdeen’s global head of fixed income Jonathan Mondillo is betting that the wholesale market will value the firm’s fundamental credit research platform in the same way institutions do.
Mondillo, who was appointed as the successor to Craig MacDonald late last year, told FSA in an interview that growing Aberdeen’s wholesale channel is one of his key priorities this year.
“We think we have something to offer,” he said. “For some of the same reasons the largest pension, sovereign wealth, insurance clients globally trust Aberdeen, our philosophy, our process – we think that it should translate to wholesale.”
“Me taking on this role is less about having to shift things, because performance is there,” he said. “Our bottom up, fundamental credit research leading to outperformance is clearly showing up in the results.”
Indeed, Aberdeen’s fixed income platform is a bright spot for the asset manager. According to its latest annual report, over 90% of its fixed income AUM is outperforming on a three-year and five-year basis.
“If it’s not broke, don’t fix it,” Mondillo said. “For me, the ship is moving in the right direction. Our fixed income team is long tenured, the industry experience is rather vast, and the performance platform is nothing short of exceptional.”
After years of interest rates grinding lower in most of the developed world, investors are finally seeing high coupons for the first time in decades, which is something Mondillo wants to capitalise on.
“Equities have been a hot asset class for my entire career,” he said. “Now we’ve shifted. Wholesale is interested in fixed income. Now it pays to be in fixed income.”
Against this backdrop, Mondillo said a lot of effort has been put into doing teach-ins with clients within the wholesale channel, hoping to capture some of the cash still sitting on the sidelines.
This has been guiding the firm’s efforts in product development – where it has recently repositioned its short-dated enhanced income strategy.
“It’s a short-dated global credit mandate as an alternative to cash and money markets funds,” Mondillo said. “There’s still a lot of cash on the sidelines – we think there’s a better alternative especially with most developed market interest rates having come off significantly.”
On the investment side, Mondillo is focused more on bottom-up credit selection rather than the macro backdrop, which has been extremely volatile year-to-date.
“In our credit strategies, we want to focus on bottom up,” he said. “I think if you’ve looked at the large macro managers over the first two months, you’ve probably seen a lot of home runs but you’ve seen a lot of strikeouts as well.”
“You either got the call right or you got the call wrong. A coin flip to us is not, from a risk standpoint, appropriate and not something that we historically try to manage.”
“I think in this volatile macro environment. We’d much rather rely on individual security selection.”
On the private markets side, Mondillo flagged some potential issues in the lower echelons of private credit where there is a growing number of non-interest-bearing issuance.
“That’s a concern to us,” he said. “When you talk to traditional players in the space, they often point out correctly that it allows smaller companies to reinvest, to spend capital, and to improve long term growth.”
“That certainly is true, but call me old fashioned, I’m a bond guy: if you’re not paying me interest, that’s a sign of distress. That’s a sign of an inability or unwillingness to pay interest.”
