Despite the low-interest-rate environment and government bond yields reaching record lows, large fixed-income managers are still positioned to see continued inflows from institutional investors and largely expect their business strategies to remain intact, bond experts and money management executives say.
There will still be demand for fixed-income strategies among institutional investors, whose investment objectives run the gamut from finding a source of income to managing heightened volatility during the coronavirus pandemic to implementing liability-driven investing in their portfolios.
David A. Hunt, president and CEO of $1.3 trillion PGIM Inc., Newark, N.J., said that low interest rates seen since the global financial crisis have "fueled a search for yield within fixed income," that has resulted in institutions "moving out of lower-yielding Treasuries into higher-yielding fixed-income products, whether corporates, high yield, bank loans, structured products or emerging markets debt (strategies)." PGIM Fixed Income had $920 billion in assets under management as of June 30 across its active fixed-income platform, which includes investment-grade credit, emerging markets debt, LDI, municipal and government bond strategies.
Since the emergence of COVID-19, PGIM has seen the search for yield "intensify," Mr. Hunt added.
"Overall, we believe that fixed income will continue to be part of the very much growing asset management industry," Mr. Hunt said, noting that demand for higher-yielding strategies should continue as long as rates stay low.
Additionally, as populations in developed countries grow older and more individuals reach retirement age, demand for fixed income is expected to increase, Mr. Hunt said.
On Sept. 16, the Federal Reserve signaled that interest rates would remain near zero through at least 2023.