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THE 'REAL' GREAT ROTATION:

Analyzing Shifts within Fixed Income and Towards Liability Matching

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Executive Summary

It is clear that pressure among global institutional investors to meet their long-term liabilities is driving forward the need for higher yielding assets. But whilst certain market commentators have suggested that this will result in a “Great Rotation” out of fixed income assets into higher return/higher risk equities, the latest white paper by Misys considers a more nuanced approach. The central thesis of the white paper is that far from rotating completely out of fixed income securities, investors are relying on asset managers to find compelling alternative yield opportunities in other areas of global fixed income – high yield and investment grade corporate bonds are just one example of this. However, trading higher yield fixed income assets brings a new series of challenges to managers with respect to risk management and keeping on top of pre- and post-trade compliance limits. This is especially important when considering the rise among institutional investors, both in the US and Europe, for Liability-Driven Investment (LDI) strategies to address the funding gap that arose following the global financial crisis, which this paper also addresses.