Stockholm (NordSIP) – On July 2, the Swedish-based asset manager Captor launched Captor Dahlia Green Bond, an actively managed fixed income fund with a focus on global green and sustainable bonds. NordSIP reached out to Daniel Karlgren and Cecilia Dahlstedt Myrgård, the fund’s portfolio managers (pictured), to find out more about the strategy and their views on the green bond market, especially regarding the hairy question of whether the premium that green bonds can achieve is a positive development for market or not.
For both managers, the “greenium” seems to be a logical development in the market, and it is not necessarily negative for investors, as long as risks are managed in the right way. “Every issuer who goes through the process of setting up a green bond program ends up with extra cost,” says Karlgren. “Therefore, they expect a premium on their financing. What we try to do is minimise the impact of that premium on the investors. We trade interest rate derivatives to maximise the return on our investments keeping duration at the most optimal point of the interest rate curve.”
“All in all, we believe that the greenium is important to expand the green bond sector,” adds Dahlstedt Myrgård. “Once this sector is large enough we think that the non-green market will turn into a side market for non-scrupulous investors much as non-screened stock investments. It is important that other issuers than real estate companies, that hold a big part of the market today, can achieve a greenium. For example, many industrial companies may be able to turn to the green side if the pressure from investors and the greenium receive more focus.”
Furthermore, the team mentions the recent emergence of covered green bonds as another positive development. “We saw it as very positive, for example, that Landshypotek Bank issued the first green covered bond in the SEK market. Because we use cleared swaps for handling the interest risk in the fund, we can use green covered bond as collateral,” mentions Karlgren.
That being said, the market can still improve. “We hope to see a continuously greater variation of issuers in the green bond market,” continues Dahlstedt Myrgård. “We would also like to see a more standardised reporting since that would ease in turn the reporting to our clients. We have seen for example more issuers connect their framework or project to the SDG’s which we find positive.”
In order not to get caught in unexpected developments in the green bond market, the mandate of the fund is a little wider than its name suggests. “We still do not know how the green bond market will develop,” starts Karlgren. “At Captor we want to be able to stay in the sustainable investments market for the long term. For that reason, we also invest in social bonds and sustainability bonds. One determining factor is that the bond programs we invest in must have a second opinion we can trust. All investments are reviewed by our internal sustainability expert who also provides a report to our end clients.”
The same flexible and pragmatic approach applies to other limiting criteria that the team uses to define its investment universe. While an investment grade rating is a priority, it is not necessarily a must. “We will focus mainly on investment grade-rated bonds, but within certain limits, we can also buy unrated and/or BB-rated bonds as far as diversification allows. Many large Nordic issuers do not have official ratings, and since it is our home market we prefer not to close the door on those investments,” explains Dahlstedt Myrgård. On the same vein, the team chose not to limit its universe to the Nordics. “Our home markets are the Nordic countries, but we have the mandate to invest worldwide. As we want to diversify our portfolio, we will definitely look at all available markets. The green bond market is still under fast development, and we want to be able to do business where opportunities arise. Our investments will be FX hedged to Swedish krona, and we will use interest rate derivatives to keep track of our interest rate duration and risk,” she continues.
Commenting on the fundraising process, Karlgren says: “The starting AUM will be 255 million kronor. It is a discretionary mandate that has seeded the fund. We see more interest from customer to invest. Especially from corporates and institutions who are looking for sustainable fixed income investments.”
Picture © Captor