Process and Capabilities

Process & Capabilities

Process

Investment Valuations consistently applied in portfolio decisions with a strong focus on managing risk.

Investment Value is at the core of Colchester’s investment process. It is the synthesis of “Real Value” and “Financial Stability” assessed across countries, currencies, sectors, duration and maturity.

Real Value is captured by our estimates of the prospective real yield – after subtracting the impact of expected inflation from the nominal yield. This is supported by a robust inflation forecasting framework grounded in the monetarist tradition. Our inflation forecasts are primarily underpinned by lagged money and credit growth. This monetary orientation is supplemented with more direct ‘price’ information arising from commodity price and currency changes. We also attempt to capture demand pressures through the use of ‘capacity’ utilisation terms when relevant.

Financial Stability Score represents an assessment of a country’s overall balance sheet and governance standards and includes, where it is possible and practicable to do so, environmental and social, factors. The Financial Stability Score is produced both for the bonds issued by a country and for the currency. We do this through an extensive assessment of the macro-economic environment, policy framework, ESG standards and other country specific factors. Countries with strong financial balance sheets will receive a premium while weaker ones will be penalised.

ESG factors are an integral part of the investment process and they are incorporated into the balance sheet analysis. We believe that a government with sound ESG policies will produce better economic outcomes compared to countries with poor ESG practices. The strength of governance is a key consideration in the determination of the Financial Stability Score.

Our Investment Management Committee approves inflation forecasts, the bond and currency financial stability scores and the resulting real yield and real exchange rate valuations. We utilise an optimisation process which is used to construct efficient portfolios that offer the highest available real yield and exposure to the most attractive currencies on a real exchange rate basis, within the overall risk constraints of the portfolio.

Our goal is to allocate the tracking error budget to generate two-thirds of the excess return through the bond portfolio and one-third of the excess return through the currency portfolio.


Capabilities

Our central investment strategy is applied consistently across each mandate, to multiple benchmarks and different base currencies, whilst offering alternative currency hedging strategies.

Clients have the option of tailoring a portfolio to their needs; whether it be within our flagship global sovereign bond capability or another subset of the market such as local emerging markets, inflation linked bonds or our alpha program. Colchester offers the ability to manage to a range of benchmarks, and various currency management and risk parameters.

Investment management services are offered to New Zealand clients on a separate account basis for mandates over NZ$75 million. Wholesale funds are offered to investors via platform or to wholesale clients for a minimum investment of NZ$50,000.

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Request a copy of our ‘Investment Process’ document.

ESG, CSR & Sustainability.

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Colchester Global Management

Colchester Management

Principals

Colchester’s Principals have a long history of working together and share common investment principles.

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ESG, CSR & Sustainability.

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Who we are

About Colchester

Organisation

Colchester Global Investors is a privately owned investment management firm offering value oriented, global bond management services. Chairman and CIO Ian Sims founded the asset management business in 1999. Colchester’s headquarters are located in London. The firm also has offices in New York, Singapore, Dublin, Sydney, Dubai, Madrid and Munich.

Colchester has funds under management of approximately NZ$42 billion across four core strategies being global sovereign bonds, global inflation-linked bonds, local currency emerging market debt and an alpha program. The firm manages assets for global institutions including Corporate and Public Pension Funds, Foundations, Endowments, Insurance and Sovereign Wealth clients. Colchester enjoys a long-standing history of managing money for many prestigious Australian and New Zealand institutions, with assets under management of approximately NZ$7.1 billion.

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Colchester Global Australia

Philosophy

We believe that a portfolio of higher real yielding bonds and undervalued currencies, according to their real exchange rate, will outperform its benchmark over a medium to long term investment horizon.

At the heart of Colchester’s value-oriented philosophy is the belief that investments should be valued in terms of the income they will generate in real terms. Our approach is based on the analysis of inflation, real interest rates and real exchange rates. Real yield analysis, supported by an assessment of a country’s financial stability (encapsulated in macro and financial balances such as the current account, fiscal and monetary balances, etc.) provides the framework in which bond markets are valued. Similarly, real exchange rate analysis together with short-term real interest rate differentials and an assessment of external financial balances provides the framework in which currencies are valued. Portfolios are constructed to benefit from those opportunities with the greatest relative investment potential for a given level of risk.

Colchester’s portfolios principally comprise sovereign bonds as specialisation and focus are key features of our philosophy. The firm eschews corporate credit, believing instead that its broader sovereign opportunity set provides sufficient diversity and return potential to deliver excess returns over the course of a full business cycle.


Request a copy of our ‘Prospective Real Yields’ paper which underpins our philosophy.

Read about our global bonds offering.

Meet the Colchester Team.

Watch our recent video insights.

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