4 MAR, 2020
By Constanza Ramos
We present you Omotunde Lawal, Fund Manager of the Month. We especially choose leading women in business for our professional of the month section to celebrate International Women’s Day. Omotunde Lawal is the Head of Emerging Markets Corporate Debt Group and the lead portfolio manager for the Emerging Markets Corporate Debt strategy, as well as a member of the Barings EM Investment Committee. Prior to her current role, Tunde was the Head of Barings EM Corporate Credit Research, with research coverage responsibilities for various sectors such as Real Estate, LATAM Energy, and LATAM Infrastructure. Tunde has worked in the industry since 2000 and holds a B.Sc. in Accounting & Finance from the University of Warwick, is a Fellow of the Chartered Institute of Accountants in England and Wales, and is a member of the CFA Institute.
When and how did you start your career in the financial industry? Did you have any other vocation?
I started in the financial industry in the summer of 2000 with the firm previously known as Arthur Andersen, which was one of the Big 5 auditing firms in those days. I had received the job offer from Arthur Andersen whilst still at University of Warwick to train as an accountant/auditor. This usually involved a 3-year period of training plus exams on the job to gain the Chartered Accountant in England & Wales certification. This gave me a very good understanding of how businesses in various sectors operate, the key risks you would expect in each sector, and how the financial information is prepared.
What is it that you like most of your job? What do you like the least?
I love my job for many reasons, but most importantly I love the fact that we have the opportunity to invest in and work with many different companies in various industries and various countries especially in emerging markets. It is very rewarding to see some of these companies grow over time into large multi-billion dollar revenue generating companies. The most taxing part of the job, in my view, is the large volume of information we have to process each day. We invest in over 55 countries and the universe of EM corporate issuers exceeds 1200, so there is always news flow relating to some country or company which we need to be aware of.
What’s your biggest challenge as a portfolio manager?
As a portfolio manager, the key challenges in my view are managing the balance between fundamentals of the investments in the portfolio against the market technicals, and remaining calm under pressure when fundamentals and technicals do not move in tandem.
Do you consider women as being more measured (calmed) when managing a portfolio?
Haha! I believe there is some research out there that diversity is good (diversity helps to achieve better or higher risk-adjusted returns) for risk-adjusted investment returns, which is a strong argument for boosting diversity (gender or racial diversity) within the asset management industry. I would say that remaining clam under pressure is certainly a highly valued trait in the fast-paced financial sector, and I have come across and worked with many measured and calm women in my career thus far.
Which funds do you currently manage? How many assets (in total) do you manage?
I am the lead portfolio manager for several EM corporate debt strategies such as Barings EM Corporate Bond Fund, which is benchmarked to the JPM CEMBI Index; and Barings EM Short Duration Fund, which is a total return high-conviction fund targeting LIBOR+200bps. I also manage several segregated accounts running various strategies such as Asia IG, Global EM IG, Global EM HY as well as fixed maturity mandates. The team total assets under management including segregated accounts and sleeves is approx. USD4.5bn.
What are the main differentiator factors (competitive advantages) of Barings funds in current market conditions?
Barings’ investment process focuses extensively on bottom-up fundamental analysis; which means that we analyze each company individually by delving deeply into the financial information (income statements, cash flow statements and balance sheet). We also build our own proprietary cash flow forecasts, and review the creditor covenant protection ourselves. This fundamental corporate research is also complemented with a similar bottom-up approach on the sovereign side, which gives us a detailed analytical underpinning for our portfolio positioning. This process is possible with the large team of dedicated EM analyst resources, which we have at Barings (9 on the corporate side and 7 on the sovereign side). In current market conditions with heightened volatility, a strict focus on detail, conviction and depth of analysis are very important, and this is what differentiates Barings.
What are your market expectations and outlook for EM corporates? Where are you finding the biggest investment opportunities?
For 2020, we are expecting the decoupling in spread performance between EM corporates and EM sovereigns to continue, with CEMBI projected to deliver the highest return among EM fixed income. We expect the supportive global macro backdrop for credit to extend into 2020, despite uncertainties surrounding the trade conflict and economic growth (Cornonavirus epidemic), still hanging over markets, which may result in bouts of volatility from time to time. Nevertheless, unless there is an abrupt turn in expectation for rates to move meaningfully higher, our base case is for EM corporates to remain resilient. We expect more constructive global growth and a stable Fed, which should be positive for EM overall. We expect the EM corporate high yield external bond default to remain low at 2.4%. We also expect market technicals to remain supportive given the net supply of bonds in 2020 is expected to be lower than 2019, whilst demand should remain robust in the search for yield.
We see EM as an attractive space in 2020 due to the expectation that in a US election year, the focus will be on growth. We favor EM corporate short duration for the protection it affords against Treasury movements, and we like the high carry that the high yield segment offers.
While we have seen downward adjustments to China 2020 growth forecasts in recent weeks, and expect more modest changes to the broader EM growth outlook, it is too early to know how serious the contagion will be. Our view is that coronavirus is unlikely to derail the 2020 outlook due to the assumption that the outbreak will largely run its course within a few months. But it must be noted that a more protracted outbreak, and prolonged Chinese factory shutdowns in particular, would pose further downside risks.
How does a PM shelter and manage the political risks we have in the current global environment?
The Barings investment approach, which is rooted in deep fundamental bottom-up research from both the sovereign and corporate perspectives, provides us with the detail to have a high conviction in our portfolio positioning. Specifically having a large team of dedicated sovereign analysts provides us with solid analytical support to appropriately price the political risk inherent in some of the countries we invest in. We size our positions in the portfolios appropriately based on our view of the sovereign backdrop, as well as the corporate credit risk and the correlation between the corporate and the underlying sovereign.
Do you apply ESG filters to your analysis? Can you elaborate how does is taken into consideration?
Identification and assessment of ESG factors are integrated in our research process. While this does not lead to the automatic exclusion of issuers, it ensures that the investment team is aware of, and able to take informed decisions about key ESG risks. As such, ESG factors are an input into the investment process, but they are not necessarily the key determinant in the final investment decision-making process, which ultimately reflects the view of an investment’s risk-return profile.
Barings’ EMD analysts, as part of their underwriting process, engage with credit and sovereign issuers on matters with the potential to impact investment returns. Today, this practice focuses on transparency, credibility, quality of management, corporate governance business sustainability and environmental considerations. These factors are part of a Barings rating score (corporates) or probability of default (sovereigns) that we assign to each issuer. As debt investors, we are not owners of businesses, and as such have more limited legal mechanisms to influence issuers, however as we have consistently done, we often choose not to invest in credits we are uncomfortable with from an ESG perspective. We proactively engage with issuers’ management teams on ESG issues and monitor progress.
What advice would you give someone who is just starting their career in the industry?
The best bit of advice I ever received, which I will also pass on, is to always strive to provide the best service possible in each role. Even if it is not your ideal career path, your dedication and enthusiasm in such a role could eventually create other opportunities for you in what may be your true vocation.
By Constanza Ramos
By Constanza Ramos