Continuing our exploration into the Benefits of being a Wholesale Client, our final edition highlights our managed offering - the Managed Income Portfolio Service ("MIPS") - where individual direct ownership of bonds is married with professional portfolio management.
Previous articles looked at credit ratings (here), FIIG-originated unrated primary issues (here), public market primary deals (here), USD denominated bonds (here) and structured credit (here).
What is MIPS?
FIIG launched MIPS in 2015 in response to demand from clients who wanted the benefits of direct bond ownership but for whatever reason – such as lack of time, experience or simply the desire not to have to manage their own portfolio – they preferred to have a professional portfolio manager make decisions on their behalf.
One of the key principles at FIIG is that bond portfolios – particularly in credit – benefit from active management, and it follows from this that if the investor does not have the ability to manage a bond portfolio on their own, then it is valuable to have it done by someone else.
MIPS investors can match their risk tolerance and return requirements with a choice of three different AUD programs, each requiring a minimum investment of $500,000.
- Conservative Income
- Investment grade only with a maximum subordinated exposure of 20%
- Core Income
Senior ranking exposure only (no subordinated) with a minimum of 75% investment grade
- Senior and subordinated exposure with a maximum of 75% unrated assets
For clients with greater than $5m to invest, there is also the option to customise a mandate, with complete flexibility to adjust risk exposure parameters.
Institutional clients who are looking for a material uplift in yield and liquidity compared to bank deposits, may choose to invest in one of the four bank bond floating rate note (FRN) portfolios, again for amounts greater than $5m.
How does it work?
Upon opening a MIPS account, a separate cash account will also be opened. This is required so that the MIPS team have control over any cash generated from the portfolio – income to be either distributed to the investor or reinvested as directed – and to make capital available to settle transactions as directed by the portfolio management team (PMT). The cash account also needs to be segregated from other investments so that returns can be accurately calculated.
The initial funding of the portfolio can be done by transferring cash into this account, by transferring suitable existing bonds in specie, or through a combination of both.
The PMT will then invest the funds in accordance with whichever program has been chosen.
Reporting is in the form of a monthly valuation statement and quarterly update, including significant market commentary from the PMT. Documentation, such as contract notes and coupon advices, is available at any time through the MyFIIG online portal.
What have the returns been?
Having started mid-cycle, the income returns from the higher yielding higher risk portfolios have not had long enough to accrue to the level as might be expected for a full cycle of investing. The more conservative programs have performed as expected or better through the Covid-19-related disruptions.
As at the 31st of March (which is the last quarterly update) the returns from the various programs were as follows:
Source: FIIG Securities
For any investors who are considering a direct investment in bonds but have been concerned about how they would need to manage their own portfolio, MIPS offers a great solution.
Please contact Marcus Blake on Marcus.Blake@fiig.com.au or 0427 063 362 if you have any further enquiries.