MOAL The way Perpetual Investments has approached high yield – and why I was hired – was as a complement to existing strategies. I do not have a dedicated high-yield fund at the moment – instead there are a couple of funds into which I can put investments. Some have up to 10 per cent invested in high yield, one has up to 50 per cent.

The idea is to provide high-yield coupons, so I am looking for the more risky – or truly sub-investment-grade – bonds. I’m not really interested in ‘investment-grade-like’ unrated credit. This is more difficult because I’m competing with investment-grade return and, more to the point, liquidity.

I also want to have a mix of different assets. What I’m looking for is good risk-return. I like high yield, but I also believe in the capital backing the asset so that, if things go wrong, I’m looking to get back par.

These funds have different constraints regarding liquidity. They have the ability to invest in loans, but loans are very illiquid. The bond format is very valuable because it provides more liquidity and therefore
allows me to do larger volume.

DAVID We have broad-based income-opportunity strategies that have always had the capacity to invest in unrated. The only change is that these funds have grown over the last few years. This has helped our appetite more than any broad mandate changes – of which there really haven’t been any.

Our funds have the capacity to invest in the public high-yield market and emerging markets, so there is quite a bit of competition for their capital. In Australia, we will look at any company that fits the spectrum. We will do our credit  work, see what an issuer comps to and think about liquidity.

Historically this last piece has been pretty easy as there hasn’t really been liquidity. But perhaps we will need to think about it more nowadays – depending on the company. We will see how it compares to what we can get in the public markets.

I think the broad focus hasn’t really changed. It’s more that there has been an increased volume of  opportunities in this space as banks have become more willing to let assets go.

The question we will always ask is how we find the sweet spot where the specific asset a bank is willing to let go is actually something we like.

KASE We’ve had a longrunning interest in the high-yield space. It can provide diversification and additional yield. To some extent we would rather have the choice to lend directly to a corporate than lend to a bank which then lends to a corporate.

Accessing appropriate risk at the appropriate level and in an appropriate format has been a challenge in the past. It feels now, from discussions I’m hearing, that there has been a shift in incentives inside the banks – though this differs from bank to bank.

I think a number of domestic investors are ready and able to invest in the high-yield sector. We just need to get a bit more momentum going for the sector to stand on its own two feet economically. If we can get the price piece right, we will be at the beginning of something very interesting.