Neuberger Berman has launched a long/short global credit fund to take advantage of the volatility in the credit markets and prepare for rate rises.
The Neuberger Berman Global Credit Long/Short Fund is managed by Norman Milner, Rick Dowdle, Darren Carter and Itai Baron, who have worked together for nine years and joined Neuberger Berman following the acquisition of Orchard Square Partners last year.
Although macro views are taken into account, the managers use a mainly bottom-up process to analyse high-quality credit, with the aim of producing “equity-like returns”. The team only invests in large-cap liquid credit, with no structured credit, distressed or private debt, and use hedging strategies for capital protection.
Milner says: “While credit quality in general remains historically robust among developed market corporate bond issuers, default rates are forecast to rise and higher interest rates could have an impact on flows in the market.
“In an environment of tight spreads and even tighter liquidity, increased volatility in credit markets would not be surprising going forward. This means investors may now need to be more creative to control their risk.”
The managers are not pinpointing when the Federal Reserve will raise interest rates, but have positioned the portfolio to benefit from a rate hike.
“We anticipate better performance from this portfolio in a steady growth, rising rate environment than we would experience in a stalling-growth, falling interest rate environment,” Milner adds. “We will have to adapt to a new liquidity environment that will continue to be both a great challenge and consequently a great opportunity.”
The Neuberger Berman Global Credit Long/Short fund is an Irish-domiciled Ucits fund and is registered for sale in the UK. Minimum investment is $1,000 (£634) with ongoing charges of 1.7 per cent and a performance fee of 15 per cent.