e-fundresearch.com: What is the current size of the fund and where do you see potential capacity limits of this particular strategy?
Morten Bugge: Size: €600mn. Capacity estimate: €2bn.
e-fundresearch.com: Do you also manage other funds or mandates? What is the total amount of assets you manage currently?
Morten Bugge: €800mn.
e-fundresearch.com: What was Global Evolution / Saxo Bank’s motivation to launch a Frontier Market – Fixed Income Strategy in the first place?
Morten Bugge: To capture in a dedicated strategy our long term experience and track record in frontier markets and offer to investors one of the most interesting fixed income strategies going forward.
e-fundresearch.com: What are the main steps in your investment process and in which area is your competitive edge to add value to investors?
Morten Bugge: At Global Evolution, we have developed a unique investment process, based on our top-down sovereign approach. The investment process has remained consistent through various market events and cycles for more than a decade. We generate investment ideas through a continuous exchange of ideas among members of our investment team and from collection and comprehensive analysis of data. The investment process has four core aspects:
Market Watch – We first determine the over-all portfolio risk profile in each of our strategies by analyzing global macroeconomic and political trends and market technicals to provide an overall framework for portfolio construction.
Country Watch – We then analyze macroeconomic and political conditions in each of the 125 countries in our universe. We use our proprietary Information Center to monitor, document and support the on-going analysis of each country from a detailed economic, political, currency, financial and demographic viewpoint. In this phase we form our view on each country's strategic long-term investment potential and conduct a detailed country risk assessment.
Relative Value – Among the various opportunities that might be available at any one time, we make relative value assessments (inter- as well as intra-country) utilizing our proprietary relative value models. This leads to the final Portfolio Construction.
Risk Management – A necessary element of any top-performing manager is a feedback loop that identifies the common set of factors driving risk and performance. Risk Management analyses are conducted pre-trade as well as post trade.
e-fundresearch.com: Does your strategy employ any particular country or liquidity limits?
Morten Bugge: 5% country maximum.
e-fundresearch.com: Frontier markets are only very rarely covered by traditional (reliable) research providers, how do you overcome this problem when it comes to debtor quality assessments? To what extent do you also incorporate in-house research?
Morten Bugge: A number of reliable research providers are in fact available also in frontier markets, but besides from that we have build our own country monitoring system which along with frequent country visits and our long-term experience in frontier markets is the foundation for the individual country detailed risk assessment.
e-fundresearch.com: Compared to common frontier market indices, which particular frontier market region are you currently overweighting/underweighting the most – and what expectations are these deviations based upon?
Morten Bugge: There are no common frontier market fixed income indices, but our largest absolute weight is in Africa that currently markets up for 45% of the portfolio. Across different African countries we see some of the best investment opportunities currently.
e-fundresearch.com: Which benchmark is most relevant and how should investors compare the fund vs. benchmarks or peer groups?
Morten Bugge: Investors should likely compare the fund to traditional Emerging Markets benchmark and funds as this is an alternative to traditional EM.
e-fundresearch.com: Which performance did you achieve for the fund YTD and over the past five calendar years in absolute terms and relative to relevant benchmark or other reference indices – do you have any particular performance targets?
Morten Bugge: As of November 29th performance year-to-date was +3.68% which compares to -6.05% for EMBI Global Diversified hedged to EUR and -8.47% for GBI-EM Global Diversified. The fund was launched in December 2010 and over the past 3 years it has returned 27.4%.
e-fundresearch.com: Traditional emerging market debt instruments reacted very sensitive to FED-tapering announcements. How do you incorporate (if at all) the impacts of a possible FED-tapering in your frontier markets debt strategy?
Morten Bugge: Frontier markets has a very low foreign participation (typically
e-fundresearch.com: What motivates you in your job?
Morten Bugge: I’m strongly motivated by finding trade ideas that can benefit the fund performance. By doing so I also get the opportunity to go to a lot of these countries as part of the risk assessment which can be very motivating at times.
e-fundresearch.com: Which other profession would you have considered apart from becoming a fund manager?
Morten Bugge: Dive instructor in the Caribbean.
e-fundresearch.com: Thank You!