AMWATCH article: Sweden’s oldest fixed income hedge fund attracts new interest

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AMWATCH article: Sweden’s oldest fixed income hedge fund attracts new interest

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Fund Management

Sweden’s oldest fixed income hedge fund attracts new institutional interest

Nordic institutional investors are returning to fixed income investments, says Thomas Pohjanen, who co-manages the Mellby Gård-backed fixed income hedge fund, Excalibur.

Thomas Pohjanen, co-manages the Excalibur Fixed Income fund. | Photo: Excalibur

By JONATHAN FURELID

Against the backdrop of higher interest rates, Thomas Pohjanen, manager of fixed income hedge fund Excalibur, sees continued opportunities in a market that has long been difficult to navigate for fixed income managers.

“The increased interest in fixed income investments coincides with the central banks’ normalization of key interest rates in the wake of the inflation shock. The asset class offers an alternative to equities that did not exist under the zero interest rate policy,” he says:

“This has resulted in annual client inflows of between 20-30 % for the fund. The fact that we have managed to navigate the fixed-income markets reasonably well over the past four years, with an average return of 6.5 % per year, also contributes to increased client interest. It is mainly smaller institutions and foundations that are showing interest in investing with us.”

Björn Suurwee, co-manager of Excalibur. | Photo: Excalibur

Rune Andersson’s investment company Mellby Gård is behind the fixed income fund. It has been managed by Thomas Pohjanen and Deputy CEO of Excalibur Asset Management, partner Björn Suurwee, since its inception in April 2001. The fund was launched with the goal of generating an annual return of 3-5 % above the benchmark.

In today’s environment of higher market rates and rising volatility, new opportunities are opening up for a fixed income hedge fund with a flexible mandate to generate returns in different markets, Pohjanen says.

“In the fund, we have been working to position ourselves to benefit from the inflationary impulses that are slowly but surely subsiding. With inflation falling, quarter by quarter, we have seen a positive return of around 4% so far this year. This reflects our belief that inflation is stabilizing, allowing us to navigate the market in a more predictable manner.”

As for future developments in the fixed income market, Pohjanen does not expect central banks to go back to the low levels seen before the rate-hike cycle.

“Central banks don’t seem to be in a hurry to cut rates back to the low levels we’ve seen in the past. Lessons have been learned from the years of zero interest rates and heavy quantitative easing, and it is likely that we will see a more balanced monetary policy going forward. ”

Pohjanen does not believe there is any reason to expect drastic cuts from the Swedish central bank, the Riksbank, in the near future.

“Given the weak development of the Swedish krona and the challenges that come with a weaker currency, I think the Riksbank will prefer a more cautious approach. A currency that is too weak could lead to us importing inflation from abroad, which would be harmful to the Swedish economy.”

No clear signs of recession in the US

In terms of the US, Pohjanen believes that relatively high real interest rates are holding back demand and that the Federal Reserve can be expected to taper interest rates over time.

“When we look at the employment figures, especially in the US, we have seen a clear rise in unemployment. The US labor market has been expanding faster than new jobs have been created, leading to an increase in the unemployment rate from 3.4 % to 4.3 %. Despite this, there are no clear signs that the US economy is heading into a recession. Instead, it appears that the decline in interest rates and inflation are stabilizing factors.”

According to Pohjanen, several Fed members have argued that the above factors are reason enough to start considering a tapering of interest rates.

“The US currently has very high real interest rates compared to Europe, and this gap between the policy rate and inflation will, over time, depress demand, especially among households with fewer financial resources,” says Pohjanen.

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The fund Excalibur is managed by Excalibur Asset Management AB and is a so called special fund governed by the law (2013:561) on Alternative Investment Fund Managers. The fund is not covered by the provisions of the Council Directive of 20 December 1985 on the Coordination of Laws, Regulations and Administrative Provisions relating to Undertakings for Collective Investment in Transferable Securities (UCITS) (85/611/EEC), as amended, (the “UCITS Directive”).

This website is not intended, and should not be considered a recommendation by Excalibur Asset Management AB, that users of the website should purchase units in the fund managed by Excalibur Asset Management AB. Prospective purchasers should form their own opinion of any potential investment in the fund, taking into account the information contained in the information brochure, fund prospectus and fact sheet for Excalibur.

There is no guarantee that an investment in Excalibur will not lead to a loss. This is also the case even if there is a positive development in other parts of the financial markets. Historical development is no guarantee for future returns. Any means invested in the fund can appreciate as well as depreciate in value and there is no guarantee that the full invested value will be returned. The fund value may vary a lot due to the composition of the fund and the methods of portfolio management used.

Distribution of information in respect of funds managed by Excalibur Asset Management AB in certain jurisdictions may be restricted by law. Persons that are contemplating to request such information are required by Excalibur Asset Management AB to inform themselves about and observe such restrictions.

The units of the fund in Excalibur may be marketed to both professional and non-professional investors in Sweden. Excalibur Asset Management AB also have the right to market Excalibur to professional investors in Finland, Luxembourg, Ireland, the Netherlands, Great Britain and Norway.

The units of the fund Excalibur, with its different share classes and feeder funds, have not been registered, and will not be registered, in accordance with any securities legislation in the United States, Canada, Japan, Australia or elsewhere and may not be offered or sold to or within the United States, Canada, Japan, Australia or in any other country where such offer or sale would conflict with applicable laws or regulations. No information of any nature may be transmitted to parties in these countries except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of such applicable securities legislation. Nor may the units of Excalibur be offered or sold to persons in these countries except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of such applicable securities legislation.

No offering of units, as applicable, is or will be made to persons whose participation in Excalibur requires that further information brochures or prospectus are issued or that registration or other measures are taken in addition to those required under Swedish law. Excalibur Asset Management AB has no responsibility whatsoever for determining that an investment from outside Sweden is being made in accordance with the law of that country.

Any dispute, controversy or claim arising out of or in connection with information regarding Excalibur shall be settled in accordance with Swedish legislation exclusively by a Swedish court of law.

Except for certain information related to specific market conditions, the information on this website has been prepared in Swedish and translated into English only for the convenience of non-Swedish readers. In the event of any discrepancies between the Swedish and the English versions of the website, the Swedish version shall prevail.

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