On the Record: Investing in the time of COVID-19

Fighting COVID-19 through portfolio management
In our response to COVID-19, we were very fortunate, because we had taken some profits last November from our equity bucket and bought some government bonds. We entered the crisis in the best possible position and at the end of March we rebalanced the portfolio, buying back more equities than we had sold. 

During the second half of last year we also focused our strategy on quality assets. This meant that we got rid of some positions that could be problematic in a financial crisis. 

While CPEG does not have any specific thematic investments linked to COVID-19, we believe that by implementing our ESG strategy we are having a positive impact in terms of managing the pandemic. In fact, there are analyses showing a correlation between casualties from COVID-19 and carbon emissions at national level. 

We are also indirectly dealing with COVID-19 through our impact-oriented investment in private equity and real estate. There are internal discussions on how to increase exposure to impact investments.

Another area of interest is the green and recovery bonds issued by EU governments. The planned issuance of €220bn-worth of green bonds represents a good investment opportunity because it will almost double the size of the green bond market. It will add depth and liquidity where they are needed. These bonds are particularly interesting for a Swiss investor because the currency hedging costs appear to be stable over time.

Perhaps the most significant efforts that CPEG has made in terms of fighting COVID-19 has been to allow me to deal with my own responsibilities as a major in the Swiss Armed Forces. During the most difficult days of the outbreak, I was in charge of 250 men whose job was to secure and sanitise hospitals. At the same time, I was managing the CPEG’s portfolio. It was challenging on a personal level but the organisation was very understanding and flexible to accommodate my schedule. 

Having successfully brought back the portfolio to positive territory on a year-to-date basis, we are now looking to the future. Life after COVID-19 will not be the same but our organisation is ready. Things are changing in the asset management sector as  governments show their commitments to sustainability. 

Aiding the economy at a difficult time
FRR is investing in connection with COVID-19 by seeking to aid the economic recovery. We are also participating in targeted initiatives for the most affected sectors in the French economy, tourism in particular. We are also considering investments in the health sector.

More generally, we are increasing our investment in French private-equity assets. This is not targeting sectors hit by COVID-19 in particular, but it is going to provide capital to French companies. We will focus on growth capital, which has been identified as lacking in the financing of the French economy. There is also room for investment in infrastructure. 

The size of our new commitments is €1bn. We had already planned to commit this amount prior to the onset of COVID-19, but the crisis has made these investments all the more urgent. We have already started to deploy the amount and will accelerate the deployment over the next few months. 

The commitment represents a significant amount for our fund. As a result of COVID-19, the French government has decided to accelerate our liability schedule for €5bn, which we paid in July, and has requested additional annual payments of €1.45bn from 2025 to 2023. This means that the surplus in our fund, and its overall value, have been reduced substantially.

The issuance of bonds from the EU represents a very interesting development. However, I doubt that FRR will invest in those bonds, due to their low expected yield and the fact that we would have to change our fixed-income mandates. 

Looking for the right opportunities 
Wells Fargo Asset Management (WFAM), which manages NEST’s global investment-grade corporate bond fund, has invested on our behalf through the Bank of America’s Covid-19 $1bn (€860m) bond issuance, the first bond issued in May by an institution entirely focused on the coronavirus pandemic.

The proceeds are allocated to healthcare industry lending in the firm’s global commercial bank, specifically not-for-profit hospitals, skilled nursing facilities, and manufacturers of healthcare equipment and supplies.

While this is the only COVID-19 bond in our portfolio, we continue to look at further opportunities and will invest when the right opportunity presents itself. We believe these bonds have the potential to generate competitive yields, while also helping to meet financing needs created by the virus.

Just like any other investment, we need to ensure we also get the right valuation and that our members are suitably rewarded. While we want to play our part in the recovery from coronavirus and the impact of the lockdowns, we have a duty to invest our members’ money wisely and in a way that helps best prepare them for retirement.

WFAM continues to monitor this subset of social bonds on our behalf in conjunction with their ESG team and will look to add Covid-19 bond exposure when they see the right opportunities.

Interviews by Carlo Svaluto Moreolo