Nathalie Coffre is head of short term solutions management at Amundi. She spoke to Room151 Quarterly magazine in October about the highs and lows of liquid bond fund management.
What do you do at Amundi?
I run the team here that manages two short-term liquid bond funds, one with about six month duration and one with about 12 month duration. They both have Sterling share classes and offer treasurers such as those at local authorities, who have cash they’re able to put to work for longer, a valuable alternative to cash deposits.
Tell us about the funds…
The process that underpins them was created here in 2001 and then implemented in the two different funds which were launched in 2004 and 2011. Firstly we’re trying to capture the ‘term premium’ that exists in and around the long end of the money market curve and the short end of the bond yield curve. Secondly we’re also trying to capture the ‘credit premium’. So we use a fully independent, in-house credit analysis team for their credit assessments of specific issuers, who give us go/no-go advice, and combine that with data from a second credit team which supports decisions about risk/return projections. This second team can help us make calls, for example, about where the best risk/return profile is within a peer group; should we favour BT or Orange or any other Telecoms name over a particular time horizon, for example. Both teams help us manage credit risk.
Why do you think treasurers are looking at short term bond funds?
Let’s look at that by way of an example. If you take a European financial issuer for example, say Credit Agricole, then any deposit certificates with a maturity less than three months will offer a negative yield; you are effectively paying the bank to hold your money. The yields between three months and around nine months will be very close to zero. On a one year investment horizon you could expect to yield around 0.2%. However, if we look at one year bond paper in the secondary market, issued by Credit Agricole, you are likely to find yields of around 0.45-0.5%. If we go out to two year paper and consider floating rate notes, then we would be able to find EURIBOR plus 15 basis points. This is a European example of course but it goes some way to explaining why treasurers are exploring options for their investments.
What’s your background?
I’ve been at Amundi since 1988 and I’ve headed up the Short Term Solutions Management team since 2006. In 2001 myself and Thierry Darmon created the investment process that we use today in the short-term enhanced bond funds. We’ve managed to build a 56% share of the market in France of the enhanced bond market. That’s quite satisfying as it means clients trust us.
You’ve seen some highs and lows, then. What did you learn from the credit crisis?
We were managing short-term bond funds when Lehmans collapsed in 2008 so we don’t think of anyone as too big to fail anymore. The main lessons are firstly to be diversified – you cannot eliminate default risk but you can diversify your holdings. Secondly, you have to be able to change positions very rapidly so you need to be invested in highly liquid assets that enable you to sell your positions quickly if you fear the worst. Don’t wait till it happens or your position becomes worse.
Does your size enable you to move quicker than the competition?
In that respect I don’t think being a large fund is an advantage or disadvantage. Our size is most beneficial when it comes to pricing power. The ability of our trading teams to get higher prices and better execution is where size really counts.
Do you think there’s much capacity in the short-term bond market?
Yes. We really think so. Looking at the market today and what’s out there, we think we could double the size of our flagship funds in this space which currently have around €7bn in them.
