(Bloomberg) -- Impax Asset Management wants to considerably beef up its credit exposure as the $50 billion London-based investor tries to persuade clients a more diversified revenue base will help revive growth.
“As we move from 100% equities to something that’s more like 50-50” in terms of the split between equities and credit, “then we are obviously convincing the market over time slowly that we’ve got the capability to do both,” Ian Simm, the chief executive officer of Impax, said in an interview.
As an asset manager, having more than 90% in equities has “been fine in certain market conditions,” Simm said. But there are “certain market conditions where it’s not fine.” A spokesperson for Impax, which is a publicly traded company, said separately that the 50-50 split doesn’t constitute an explicit target.
The decision to reconfigure its revenue streams follows an extended period during which Impax has seen investors redeem cash amid below-average fund returns. The asset manager, which is best known for its embrace of strategies that favor the net-zero transition, has seen its share price plunge more than 70% since the beginning of 2022.
To build up the client base, Simm says Impax can’t do a major shift into credit “overnight.” Instead, his expectation is it may take somewhere between five and 10 years, allowing Impax time to move from its current exposure to equities of more than 90% of the total portfolio “to probably 60%, or even less than 50% equities,” he said.
Simm says part of Impax’s underperformance in recent years stems from its failure to latch on to the huge gains in Big Tech, a cycle it largely sat out. The asset manager took advantage of a decline in the share price of Nvidia Corp. in June to purchase shares of the company, Simm said.
The interest in credit comes as markets try to adapt to a wide array of risks spanning wars in the Middle East and Ukraine, tariff disputes with China and an historically consequential US election. Meanwhile, both the Federal Reserve and the European Central Bank are cutting interest rates as economic growth cools.
Given the shifting economic cycles, “we would benefit from a more diversified revenue stream,” Simm said. “Therefore, over the next five years or so, we’re looking to have more exposure, relatively speaking, to things that aren’t long on the equity, and fixed income is a good place to start.”
Simm says Impax is beginning with listed credit, but is also interested in exploring opportunities in private debt markets. The asset manager announced back in January that it was buying Absalon Corporate Credit, followed in July by the news it was acquiring SKY Harbor Capital Management.
“We’ve started off in investment grade and high yield, and we’re thinking about multi-asset credit and other listed credit for the next phase,” Simm said. And Impax “certainly would take a look” at private-credit investments if the right opportunity turns up, he said.
At the same time, many of the industries in which Impax already holds equity now have better access to credit markets. So investment-grade debt is becoming a “material part of their capital raising,” which represents an opportunity for Impax, Simm said.
“They’ve got enough cash flow and and scale to justify credit, and so fixed income is now making sense in a way that 15 years ago, or even 10 years ago, it didn’t,” he said.
Despite Impax’s reputation as an asset manager focused on the net-zero transition, Simm says its expansion into credit markets won’t favor green bonds.
It’s a point on which Impax intends to be “neutral,” he said. “We would look at the credit risk for the green bond in question and we may well take a negative view” if it appears the issuer “might not be able to follow through and deliver on the returns.”
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