By Hamlin Lovell, NordicInvestor

As Head of External Managers, Anders Bertramsen runs a unit that offers wrappers for c EUR 25 billion of assets managed externally (of which c EUR 22 billion is in credit); does research on third party funds for EUR 2.5 billion of assets run by Nordea Wealth Management (of which EUR 0.1 billion is in credit), and also does some outsourced research on a bespoke, consultancy basis for around EUR 2.5 billion (of which EUR 0.6 billion is in credit) for Nordea Life and Pension.

“Our manager research team of 23 people, including researchers, split between Copenhagen, Stockholm, Helsinki and Luxembourg, follows a thorough, structured, systematic and repeatable process for selecting credit managers. This eliminates human biases”, says Anders Bertramsen.

Alpha targets for credit managers vary according to the sub-asset class. “Investment grade managers are expected to beat the benchmark by 0.50% to 1%, high yield managers by 1% to 1.5% and emerging markets debt managers by 3% or more, on average per year, through a full cycle. Our emerging market allocations include hard currency, local currency and corporate debt. The alpha target is higher for emerging markets because the asset class is more idiosyncratic”, says Bertamsen. The opportunity set will vary at different points of the cycle however. 

Incidentally, using a credit index as the benchmark is actually a pretty tough metric because it is not possible to invest in credit without incurring some transaction costs, and some passive products such as ETFs have lagged benchmarks by a large margin of several percentage points per year.

In future, some credit indices (ICE BOA) will account for transaction costs when they change constituents, which should make benchmarks more realistic than they are today…..”

He pays close attention to the type of investment vehicle, because frictional costs associated with inflows and outflows can also be expensive for long term investors. Nordea has been invested with some managers for over 10 years.

Managers are expected to outperform but they do not have unlimited freedom because they are not running unconstrained mandates.

Asset class

“Some high yield bond managers have allocated to leveraged loans, which were at one stage part of the US high yield composite”, says Bertramsen. However, this is running into regulatory constraints. Historically, the Luxembourg CSSF regulator had allowed 10% of a UCITS to be invested in loans, but the regulator has recently stated that loans are no longer eligible, and should be divested by the end of 2020. Regardless of regulation, Bertramson argues, “if a bond manager is generating the alpha from loans, it does not make sense to invest”. Similarly, some US bond managers have sought to pick up structuring, illiquidity and complexity premia from structured credit, but this could fall outside a strict mandate.

Credit rating

Credit ratings however are one area where managers should have some degree of freedom to express their views.

A lot of inefficiency in credit markets is based on credit ratings agencies being wrong, and a lot of value added by credit managers comes from mis-ratings by the credit ratings agencies…..”

For instance, investment grade credit managers might take active bets in two main areas. One is “crossover” names with a split rating, which is investment grade from one ratings agency but speculative grade from another one. Another is to invest in pure high yield. But both of these need to be within reasonable limits. “We would be comfortable with an investment grade manager allocating up to 10% to high yield, and some more to crossover names, but we would not expect to see 50% of the portfolio in high yield and crossover”, says Bertamsen.


In 2020, sector selection has been important because energy and cyclicals have underperformed, while others such as healthcare and utilities have done better. Bertramsen is happy for some managers to seek out deep value, stressed and distressed recovery stories in the hardest hit sectors such as oil, airlines, hotels, restaurants, if they have a track record of doing so. He admits that some companies are entering uncharted territory, and does not believe any credit managers had stress tested for the zero-revenue scenario that some companies face.

Alpha could also come from duration bets – and from currencies in EM credit.


Performance attribution is not a straightforward exercise, because it depends on which assumptions and parameters are used to define the framework. It is an exercise in comparative statics, where the constants define the variables.

Nothing is perfect, but a split by sector and rating probably works best for high yield debt. We decompose the portfolio into each credit rating bucket to look at the sectors….”

Fundamentals and liquidity

In late 2020, the opportunity set for active credit managers is compelling, particularly in corporate high yield. “Central bank asset purchases are distorting pricing because they buy pretty indiscriminately and the underlying credit metrics do not seem to matter. There are good and lousy ‘BBB’ rated companies. Some low quality companies are trading too tight because the Fed’s asset purchases are pushing investors into more risky paper. Investment grade managers are moving into high yield, and some high yield managers are switching from ‘B’ rated to ‘C’ rated names. We see a lot of distortion in the BBB space”, says Bertramsen.

Though there should be good long term opportunities for fundamental credit selection, in the short term there is a danger heightened volatility from liquidity driven “risk off” market reversals. Central bank asset purchases are shrinking the size of the credit market, which may add to liquidity challenges. Though it seems as if the credit markets have recovered from the liquidity drought seen in March 2020, they may still be skating on thin ice.

When people want liquidity, it disappears quickly, so the market is more shallow than it appears….”

Bank balance sheets are another possible concern. “Inventories have already fallen a long way, but some banks with bad debt issues might at some stage be forced to stop making markets in some asset classes”, he adds.

ESG and green bonds

Nordea’s ESG policies are consistent across asset classes, and there is very little difference between the approaches taken for credit and equity. “If you do not like the equity, it would be strange if you liked the bonds from an ESG perspective”, says Bertramsen.

“Green bonds are more likely to be an internal than an external allocation, though some managers can already allocate to green bonds as part of their universe”, he adds.

Current external credit managers

In fixed income, Nordea teams manage the European, Danish, Swedish and Norwegian bond or covered bond strategies. External managers are as follows:

  • Capital Four of Denmark manages European High Yield and the Flexible Credit Fund.
  • External managers handle US bonds (DoubleLine Capital LP of Los Angeles)
  • Emerging market bonds are managed by PGIM Limited of Newark while Emerging Market Corporate is run by Metlife and Latin American IG is run by BICE,
  • Unconstrained bonds, US investment grade, US high yield and global high yield are run by MacKay Shields of New York in the US.
  • US and Global High Yield are managed by AEGON.