UBP launches ESG-oriented EM debt strategy

Union Bancaire Privée (UBP) added a new ESG sovereign local-currency debt strategy focused on emerging markets that meets the requirements of the E.U.’s Sustainable Financial Disclosure Regulation (SFDR).

UBAM-EM Sustainable Local Bond will seek to improve ESG factors by favoring investments in social, green and supranational issuers. The strategy, which had $72.5 million in assets as of the end of February, invests in bonds issued in emerging markets that are also denominated in local currencies.

The EM local-currency debt segment now accounts for over $24 trillion in assets, and is currently dominating new issuance, the Geneva-based firm observed. In adopting a risk-parity model and a total return approach, market risk is spread evenly across countries, according to UBP.

“This strategy is an important achievement for our emerging markets fixed income team who have worked hard to develop a proprietary ESG and risk model in sovereign debt,” said Philippe Lespinard, head of Asset Management in London and head of Alternative Fixed Income at UBP. “We believe that this unique approach to EM local-currency debt, which combines risk parity with a focus on sustainability, ensures better diversification and risk adjusted returns over time.”

He added that recent events have validated the approach, noting that Russian government bonds have been excluded from the portfolio since the strategy’s inception. The fund is being offered to investors in Austria, Belgium, Denmark, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. 

The Geneva-based bank currently has CHF160.4 billion ($173 billion) in assets under management.

The team is led by Lamine Bougueroua and essentially swaps government bonds for local-currency-denominated green, social and supranational bonds in ESG challenged jurisdictions. Officials sad that the strategy opens up alternative ways for investors to provide countries that have weaker ESG credentials with financing.

“EM central banks have pre-emptively tightened their monetary policies and we believe investors stand to benefit from very high yields and currencies with sounder long-term fundamentals,” said Bougueroua, lead portfolio manager of UBAM — EM Sustainable Local Bond. “With this strategy we are excited to present our clients with the opportunity to contribute to the essential financing needed to achieve climate transition goals and to deliver social improvements for a more sustainable economic model in emerging markets.”

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