Buy & hold debt funds as central banks begin rate hikes: Vivriti AMC CIO

Performing Credits are the structural opportunity, which are undiscovered and yield a high risk-adjusted return amid rising interest rates

The upside risks to inflation have been exacerbated by crude oil spike, which builds a strong case for RBI to hike interest rates by mid-2022. Against this backdrop, SOUMENDRA GHOSH, chief investment officer at Vivriti Asset Management tells Lovisha Darad that held-to-maturity (HTM) strategy can help investors manage risk. Edited excerpts:

Given the geopolitical and economic uncertainty, what are the debt markets' expectations and outlook?

India’s susceptibility to the Russia-Ukraine crisis seems to be limited to the impact on crude oil prices. In fact, the recovery of global growth post-Covid and strengthening of the US dollar against rupee are expected to act as tailwinds for Indian exports.

That said, the upside risks to inflation due to excess liquidity and broken supply chains have been exacerbated by crude oil spike. This builds a strong case for RBI to hike interest rates by mid-2022 after the US Fed is on its path to hike rates and the European Central Bank hinted at ending its bond-buying sooner than expected. The hardening of benchmark bond yields seems to be already reflecting these expectations.

Which bond class will be an attractive bet in this backdrop?

The investment vehicle of ‘buy and hold’ strategy wins the fund management principle. This is because the held-to-maturity (HTM) strategy within closed ended structures works well amid rising interest rates by reducing concerns of mark-to-market (MTM) risks.

How are Alternative Investment Funds positioned given the current macroeconomic backdrop?

Despite comprising over 20 per cent of all AIFs, debt AIFs have been gaining traction over the past years due to dislocations caused by the pandemic and shallow markets with mid-market corporates having little or no access to the bond market. With normalisation in global liquidity, the structural opportunity of shallow markets is expected to gain traction.

Within the space, Performing Credits are the structural opportunity, which are undiscovered and yield a high risk-adjusted return.

From an investors’ standpoint, AIFs that use HTM strategy and run close-ended funds are better placed to deploy accrual strategies when compared to open-ended funds.

Are you planning new debt funds?

We are following a hypothesis to create well-defined funds across several risk brackets given the structural opportunity of performing credits. These funds are placed at 8 per cent-16 per cent (rupee) and 5 per cent-10 per cent (US dollar) along the risk-adjusted return curve with a focus on impact investing.

How have your products performed over the past one year?

The Vivriti Group had cumulative disbursements of $1 billion as of December, 2021. There is no delay in cash flows from any instrument in our four live funds. Further, ratings for two of our funds are reaffirmed at AA+(SO). We have raised capital from both domestic and global entities, which include insurance companies, banks, corporate treasuries, HNIs, and Family offices.