Federated Hermes launches Climate Change High Yield Credit Strategy seeded by AP1

by | Sep 10, 2021 | IN THE MEDIA

The international business of Federated Hermes has today added to its ‘impact’ product offering with the launch of the Federated Hermes Climate Change High Yield Credit Strategy. Seeded by and designed in partnership with Swedish National Pension Fund AP1, the Strategy aims to generate long-term, risk-adjusted outperformance by investing in attractive high-yield credit instruments and deliver positive impact that supports a low-carbon future.

Global efforts to fight the climate crisis have intensified, with extreme weather events becoming a frequent and threatening occurrence and the recent IPCC report highlighting the urgency of collaborative action. As we stand at the brink of change, the investment industry must fulfil its role in encouraging the transition through full engagement with corporates and integration of ESG metrics. This new Strategy gives investors the opportunity to be a driving force for change and collectively make a real-world impact across all sectors.

The investment process will include using proprietary framework – the Climate Change Impact (CCI) Score – to reflect the progress and impact towards decarbonisation that holdings are making. The Strategy will not hold companies where engagement on climate change transition has failed and will exclude controversial sectors and heavy greenhouse gas-emitting issuers that have no desire to change.

Fraser Lundie, Head of Credit, will be lead manager on the Strategy working alongside Nachu Chockalingam, Senior Credit Portfolio Manager, as co-manager. Together they have a proven track record of delivering attractive high-yield credit returns through relative-value investing across the capital structures of companies worldwide. The Federated Hermes Global High Yield Credit Strategy has outperformed the benchmark over one, three and ten year periods.

Fraser and Nachu will be supported by the 12-member credit team including Mitch Reznick, Head of Research and Sustainable Fixed Income, who is instrumental in implementing the climate framework into the investment process. The team’s dedicated fixed income engagers, supported by EOS at Federated Hermes, the firm’s global stewardship team advising on $1.75 trillion, will seek positive action on climate change through a robust engagement plan with the portfolio holdings.

Fraser and the Credit team have a long-standing relationship with AP1 having been appointed in 2017 to manage one of its Global High Yield investment mandates. They have now strengthened their partnership to create a unique and critical product open to investors across the globe.

Tina Rönnholm, Portfolio Manager responsible for external High Yield investments at AP1 “We are pleased to help bring the Climate Change Strategy to the market, a fund we have worked intensely on with the Federated Hermes Credit team for the past year. Having divested from fossil fuels throughout our portfolio last year, our ambition now and going forward is to contribute to getting absolute emissions down significantly in the real economy. Providing financing to facilitate a much-needed transition across sectors is an example of the actions we undertake in order to meet our net zero target we are determined to achieve.  We recognize the need for collaborative action and financing and by helping launch this fund vehicle, we hope fellow investors will join us in driving change.“    

Fraser Lundie, Head of Credit and Lead Portfolio Manager, at the international business of Federated Hermes “The global high-yield market offers great opportunities to identify attractive companies with the willingness and ability to change their operations, products or services in order to generate positive impact for the planet. This Strategy is a natural extension of our existing credit offering and demonstrates our commitment to making a real difference for our climate and for future generations. We have always admired AP1 for setting a high bar when it comes to delivering long-term sustainable returns for its retirees and we are delighted that our pioneering and innovative approach to credit investing has enabled us to join forces one again.”