Investment philosophy
Banquo's investment focus is on managing credit risk in the international credit markets, largely immunising interest rate and currency risk within the portfolio.
Banquo seeks to deliver competitive returns over the investment cycle through its actively managed process, allocations to sectors, durations and degrees of market exposure. Largely cash based and always net long, exposure to the market can also be accessed through Credit Default Swaps ("CDS").
Credit deterioration through migration is a greater cost to investment grade performance than default. Banquo manages migration risk in addition to default risk. Banquo sizes exposures in a risk controlled framework, with a series of strict exposure limits tested daily.
Banquo's global diversification requires global research and execution capability and this is achieved through a highly experienced and integrated investment team. The firm's research process utilises a combination of fundamental and quantitative analysis assessing credit risk on a name by name basis for default and migration risk.
Since launch Banquo has built a reputation for integrity, client partnership and the transparency of its process.
Investment Process
Over one year, triple-B downgrade probabilities can be 150 times the default probability. Many credit managers focus on default risk; Banquo manages migration risk in addition to default risk.
Banquo defines specific risk as the one-year forward-looking estimate of the probability weighted cost of migration and default. For improved diversification, Banquo's specific risk estimates determine exposure size: the greater the risk, the smaller the exposure taken.
Detailed assessment is made of the risk-adjusted return on each potential investment. Exposures are sized by Expected Loss (Expected Loss represents the mean loss of migration and default probabilities estimated). Banquo and its analysts have a strong record of accurately assessing and avoiding migration risk.
Investments must fall within strict portfolio risk limits which are monitored daily and include rating, industry/sector, country, weighted average life, capital adequacy and interest and foreign exchange. These limits aim to avoid concentrations of risk which are implied by index weighting strategies.