ING Looks Abroad for Bond Returns (Part 6)
This is the final part of a six-part series profiling ING Investment Management’s bond business.
Risk management has become more of a focal point for investors in the wake of the financial crisis of 2008-2009, which disproved the notion that diversification is sufficient to avert big losses. Risk management now has its own 45-minute presentation as part of the due-diligence process, according to Matt Toms, CFA, head of U.S. public fixed income at ING, where it used to be 10 minutes at the end of a meeting. Client questions are mostly about liquidity and counter-party risk.
ING deploys BlackRock’s system for risk and portfolio management, and it maintains an independent risk-management group that does not report to Christine Hurtsellers, CFA, chief investment officer of the fixed income and proprietary investments for ING. “This structure we’ve implemented in the last few years has resulted in a great partnership but assures that the chief risk taker and the chief risk officer are not one and the same,” she said.
“You absolutely have to be risk-aware and manage your risk budget actively for your clients given their individual mandates,” Hurtsellers said. “Having the portfolio managers, the analysts, the risk management team, and our corporate audit services staff all seeing the same data, using the same suite of tools, and all on the same page regarding what we’re trying to accomplish, assures that everyone is working towards the same goals.”
Portfolio risk and regulatory risk are among risks for which ING is on heightened alert. One manifestation of evolving portfolio risk is that interest rates are no longer as correlated with yield spreads as they used to be, given the increased importance of quantitative easing in the market over the past few years. Regulatory risk entails new rules taking shape around the world, and the implications for banking, insurance, pension and other sectors.
Aside from its global investment capacity and being in the range of optimal size of assets under management, Hurtsellers said a key differentiator for ING is its active management style.
“In this world of very high volatility, we feel you can pick one of two kinds of managers,” she said. “You can pick a manager who is long credit all the time regardless of the cycle. Or you can pick a manager who is both opportunity- and risk-aware, one who will manage your portfolio based on where we are in the cycle.”
Added Hurtsellers, “given global imbalances, monetary intervention and changing relationships, having the manager who is prepared to navigate through the changing market dynamics is a critical competitive advantage.”
The regulator may also modernize rules related to the definition of an exchange.
The firm also reported record emerging markets commission revenue.
Morgan Stanley CEO wants the Fed to raise rates in March.
Lack of connection between the two markets in China has resulted in poor price discovery and liquidity.
Management set key performance indicators to track progress of its strategic plan from 2020.