Unconstrained fixed income is an investment strategy popular with money managers and some investors that is racked with risk, said speakers on a panel Tuesday on asset management shaping the global financial system.
“The go-anywhere strategy … it will be a story that ends in tears,” said John Skjervem, chief investment officer at the Oregon State Treasury, who spoke on a panel.
Unconstrained fixed-income strategies are “please give me surprises,” said Jeffrey Gundlach, CEO and CIO of DoubleLine Capital, who also spoke on the panel. “Unconstrained” is code for investments that never go down, he said.
Jes Staley, managing partner of BlueMountain Capital Management, said that like “enhanced cash,” the term is an oxymoron.
Some money managers have too much capital, Mr. Skjervem said. There are some managers for whom the firms are most focused on accumulating assets under management by adding new investment strategies.
“The over-capitalization of asset managers is acute,” he said. “I don't think it will end well.”
Unconstrained is the “pitch du jour,” Mr. Skjervem said.
“Asset owners will buy (unconstrained) as fixed income and assume that it is capital preservation,” when it is not, Mr. Skjervem said.