Macquarie Short Duration Credit - Macquarie Investment Management Plymouth County Retirement Association
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Macquarie Investment Management
Macquarie Short
Duration Credit
Presentation to:
Plymouth County
Retirement Association
December 19, 2018
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
Important notice and disclaimer
This information is confidential and intended for the audiences as indicated. It is not to be No representation or warranty, express or implied, is made as to the accuracy or completeness of
distributed to, or disclosed to retail investors. the information, opinions and conclusions contained in this presentation. In preparing this
presentation, reliance has been placed, without independent verification, on the accuracy and
The views expressed represent the Manager’s as of the date indicated, and should not be completeness of all information available from external sources.
considered a recommendation to buy, hold, or sell any security, and should not be relied on as
research or investment advice. Views are subject to change without notice. To the maximum extent permitted by law, none of the entities under Macquarie Investment
Management nor any other member of the Macquarie Group nor their directors, employees or
This document has been created solely for initial general information purposes only. The agents accept any liability for any loss arising from the use of this presentation, its contents or
information in this document is not, and should not be construed as, an advertisement, an otherwise arising in connection with it.
invitation, an offer, a solicitation of an offer or a recommendation to participate in any investment
strategy or take any other action, including to buy or sell any product or security or offer any Other than Macquarie Bank Limited (MBL), none of the entities noted in this presentation are
banking or financial service or facility in any jurisdiction where it would be unlawful to do so. The authorised deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of
information presented is not intended and should not be construed to be a presentation of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL.
information for any pooled vehicle including U.S. mutual funds. This document has been prepared MBL does not guarantee or otherwise provide assurance in respect of the obligations of these
without taking into account any person’s objectives, financial situation or needs. Recipients should entities, unless noted otherwise.
not construe the contents of this document as financial, investment or other advice. It should not
be relied on in making any investment decision. Please see the slides at the end of this presentation for further important information.
Future results are impossible to predict. This document contains opinions, conclusions, estimates 690602 – 12/18
and other forward-looking statements which are, by their very nature, subject to various risks and
uncertainties. Actual events or results may differ materially, positively or negatively, from those
reflected or contemplated in such forward-looking statements. Past performance is not a reliable
indicator of future performance. Investing involves risk including the possible loss of principal.
This presentation does not contain all the information necessary to fully evaluate any investment
program, and reliance should not be placed on the contents of this document. Any decision with
respect to any investment program referred to herein should be made based solely upon
appropriate due diligence by the prospective investor. The investment capabilities described
herein involve risks due, among other things, to the nature of the underlying investments. All
examples herein are for illustrative purposes only and there can be no assurance that any
particular investment objective will be realized or any investment strategy seeking to achieve such
objective will be successful.
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 2
Contents
01 Macquarie Investment Management Overview
02 Fixed Income Platform Overview
03 Proposal Overview
04 Investment philosophy and process
05 Portfolio performance and characteristics
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.01
Macquarie Investment Management Overview
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.Macquarie Group
Diversified global business with 49 years of unbroken profitability
Macquarie Investment Management
Banking and
Financial
Equities / Fixed income / Listed alternatives $253.3B
Services
11%
Macquarie Infrastructure and Real Assets
Macquarie
Macquarie Asset
Management
Direct investments in infrastructure / Energy /
Real estate / Agriculture $129.3B
Capital
16% 29%
Macquarie Specialised Investment Solutions
Client-tailored investment solutions
(e.g. infrastructure debt) $5.0B
Asset information as of September 30, 2018
Commodities Corporate and
and Global Asset Finance
Markets 17%
27% As of December 2018, Macquarie Specialised Investment Solutions (MSIS) has
moved to Corporate and Asset Finance (CAF). Updated profit contribution and AUM
data will be made available at the end of the next financial reporting period.
Asset management is the
Split based on FY18 net profit contribution, calculated as management accounting profit
before unallocated corporate costs, profit share and income tax. As of September 30, 2018.
largest contributor to firm results
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 5Asset management at Macquarie
Benefit from the advantages of a global partner
$387.6 billion assets under management
Top 50 global asset manager1
Top 10 global insurance manager1
World’s largest infrastructure manager2
1,500+ employees in 24 countries
Asset and personnel data as of September 30, 2018.
1. Pensions & Investments, The Largest Money Managers (May 2018).
2. Real Assets IPE, Top 50 infrastructure investment managers (July 2018).
Strength of a global leader
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 6What we stand for
The way we do business with you defines us. It is based on three long-held Macquarie
principles:
Opportunity Accountability Integrity
⚫ Identify and realise ⚫ Accountable to our clients ⚫ Act with honesty and
opportunities for our for all our actions never compromise our
clients standards
⚫ Provide transparency
⚫ Bring innovative and including access to ⚫ Support the communities
actionable investment investment professionals in which we live and work
insights to clients
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
Finding opportunities that matter for clients
PAGE 7A global investment platform
Equities Fixed income Multi-asset Alternatives
$94.2 billion $150.3 billion $6.2 billion $136.9 billion
Geography Style Geography Specialty Geography Direct infrastructure1
⚫ Global ⚫ Value ⚫ Global ⚫ Absolute return ⚫ Global ⚫ North America
⚫ US ⚫ Growth ⚫ US ⚫ Liability-driven ⚫ US ⚫ Australia
⚫ Asia ex Japan ⚫ Core ⚫ Europe investing ⚫ Europe
⚫ Australia ⚫ Emerging ⚫ Private Style ⚫ Emerging markets
⚫ Quant
markets placements
⚫ Emerging
⚫ Absolute return
⚫ Asset-backed
markets Specialty ⚫ Australia Real estate1
⚫ Relative return
⚫ China ⚫ Korea ⚫ Municipals
⚫ Global listed (taxable and ⚫ Income
⚫ Japan
infrastructure Total Return tax-exempt) Agriculture1
⚫ Korea
⚫ Healthcare ⚫ Currency Specialty
⚫ Core
⚫ Real estate ⚫ Convertibles Energy1
Market cap ⚫ Core plus ⚫ Protection
⚫ Multi-sector
⚫ Large cap
⚫ Short/ Insurance Infrastructure debt2
⚫ Mid cap Intermediate
⚫ Small cap
Credit-based Hedge funds
⚫ Corporate bond ⚫ Long/short equity
⚫ Long duration ⚫ Real estate
⚫ High yield
⚫ Bank loans As of December 2018, Macquarie Specialised Investment Solutions (MSIS) has moved to Corporate and Asset Finance
(CAF). Updated profit contribution and AUM data will be made available at the end of the next financial reporting period.
Macquarie Investment Management asset totals are:
Total $253.3 billion, Equities $94.2 billion, Fixed Income $150.3 billion, Multi-asset $6.2 billion, and Alternatives $2.5 billion.
Macquarie Investment Management strategies unless noted below:
1. Managed by Macquarie Infrastructure and Real Assets. 2. Managed by Macquarie Specialised Investment Solutions.
A competitive range of
AUM as of September 30, 2018.
conviction-driven solutions
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 8A world of experience
267 Investment
professionals 20+ Average years of portfolio
manager industry experience
Locations and number of investment professionals
Stockholm
Portland Boston 11 London4 Munich
Vienna 14
12
New York Luxembourg 5 Zurich 24
Seoul
Philadelphia119 Milan Tokyo
San Diego 6
Hong Kong17
Singapore
54
Sydney
1
Wellington
Client service location
Macquarie Investment Management data unless otherwise noted. As of September 30, 2018.
Investing globally, servicing locally
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 902
Fixed Income Platform Overview
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.Fixed Income overview
⚫ A history built in our two home markets: ⚫ Deep and experienced team with easy client
the US and Australia access to key investment personnel
⚫ $US135 billion of assets under management for ⚫ A proposition based on customized solutions and
over 140 clients in 13 countries1 reporting addressing client needs
⚫ Three investment hubs with over 115 investment ⚫ 89% of our strategies outperforming over 3 years
professionals and 93% over 5 years
Philadelphia London Sydney
A global full-service provider of investment solutions and a trusted partner
MIM Short Duration Credit 3Q18
Data as of 30 September 2018. 1 $135 billion is a subset of the total $150 billion and excludes specific fixed income client
For Institutional Investors and Investment Professionals Only.
assets with our regional asset management centres in Europe and Asia. PAGE 11A breadth of Fixed Income capabilities
Global Co-Heads
Roger Early and Brett Lewthwaite
Global Fixed US Diversified US Core Fixed Corporate High Yield / Australia Private
Municipals Derivatives
Income Fixed Income Income Bonds Bank Loans Fixed Income Placements
Brett Lewthwaite Paul Grillo Brian McDonnell Mike Wildstein John McCarthy Joe Baxter Brett Lewthwaite Alex Alston Phillip Obazee
David Hillmeyer Adam Brown Frank LaTorraca
IG/Corporate Private Asset/Liabilities
Absolute Return US Core Plus Short Duration High Yield Tax-Exempt Cash & Income
Bond Placements Hedging
Domestic Fixed
Global Bond US Multi-Sector Intermediate Insurance Bank Loans Tax-Managed
Income
Currency Long Duration Buy and Maintain CLO Taxable Multi-Asset
Emerging Markets Structured Credit Convertibles
(CMBS/MBS/ABS)
Global Corporate Research and Trading
Craig Dembek / Kashif Ishaq
Markets and Quantitative Research
Dean Stewart / Terry O’Brien
Investment Solutions and Strategy Insurance Liability-Driven Customized Client Portfolio/Market
Chris Hanlon / Ralph Divino / Alex Clamen Solutions Investments Solutions Specialists
Specialised teams, deep fundamental analysis and established investment expertise
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 12A large, experienced and stable team
Team experience (years)
Total Average experience
number Average experience with MIM
Portfolio managers 35
Fundamental analysts 32
Traders 22
Markets and quantitative research 13
Portfolio specialists 14
0 yrs 10 yrs 20 yrs
Asset breakdown by capability ($ billion) Asset breakdown by security ($ billion)
Municipals
9.1 Non-
Corporate
Private MBS Other Other* Investment
Australia placement 10.1 0.5 7.9 grade -
30.1 13.5 CMBS Intermediate
1.8 27.7
ABS
3.8
Government
Global fixed 4.9 Investment
income Corporate grade - Long
13.9 Municipal duration
bonds
10.7 22.9
32.9
Cash/Short-
US High yield / term
Diversified Private
US Core Bank loans 13.4 placements
fixed income fixed income 2.0 Non-U.S.
15.2 11.6 13.5
18.0 Emerging High yield
markets 4.6
1.1
MIM Short Duration Credit 3Q18
Managing relevant solutions for our clients
Data as at 30 September 2018. *Other includes Currency assets (which are based on the size of the underlying portfolio being
For Institutional Investors and Investment Professionals Only.
hedged) and derivatives PAGE 13Global communication process in action
A disciplined and global approach to managing portfolios
⚫ Medium term views are set at our Strategic
Forum
Philadelphia Sydney London
⚫ Formal weekly interactions cover the
following:
– Weekly forums: Assess whether medium Strategic Forum
term views are challenged and can
establish tactical positions
Weekly
– Global investment strategy meeting:
Share views and debate ideas
Credit Rates Currency
– Portfolio positioning meeting: Review forum forum forum
Portfolio
alignment between positions and views
positioning
⚫ Regular communication also occurs outside meeting
formal meetings
Global investment
strategy meeting
Leveraging and incorporating specialized investment capabilities
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 14Our guiding principles
We believe that a focus on the core components of fixed income
instruments drives returns
Income Capital preservation Liquidity
⚫ Emphasize the yield ⚫ Emphasis on avoiding ⚫ Align liquidity to suit
component of total return idiosyncratic risk client needs
⚫ Price change is highly volatile ⚫ Use diversified sources to ⚫ Liquidity premium is
and less significant generate excess income often undervalued
Fundamental Research
Proprietary and in-depth fundamental research
Identify attractive risk adjusted investment opportunities
Our investment principles have delivered strong performance over the long term
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 1503
Proposal Overview
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.Proposal overview
Objectives:
• Provide a high quality customized solution to diversify against equities and other fixed income allocations.
• Construct a core portfolio of short-term corporate bonds, predominantly investment grade quality.
• Minimize allocation to below investment grade credit to maintain diversification against plan allocations
elsewhere.
• Deploy allocation flexibility to other safe-haven assets including treasuries, agencies, and supranational to
further protect portfolio when conditions warrant.
Portfolio Allocation Ranges:
• Investment grade corporates: 75-100%
• U.S. Treasurys & Agencies: 0-10%
• Sovereign/Supranational: 0-10%
• High Yield: 0-5%
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 17Diversification within fixed income
• MIM Short duration credit provides high • MIM Short Duration Credit strategy has had fairly low
quality diversification against higher beta correlation with other allocations across PCRA’s stable of
fixed income “spread” sectors. existing fixed income managers.
• This is important as we are in the latter • An actively managed portfolio constructed by deep
stages of the credit cycle, where spreads fundamental credit research will be paramount in guarding
could weaken. against future downgrades.
• MIM Short Duration Credit strategy offers a customized
solution with a proven track record over multiple credit cycles.
5-yr 5-yr
Strategy / Index Firm Product
Correlations Correlations
Bloomberg Barclays 1-3 Yr Credit 1.00 Macquarie MIM Short Duration Credit 1.00
Bloomberg Barclays US Aggregate 0.78 Manager A US Aggregate 0.93
S&P LSTA Leverage Loan Index 0.40 Manager B Total Return Bank Loan Composite 0.27
ICE BofAML US High Yield
0.54 Manager C High Yield Bond 0.43
Constrained
JPM EMBI Global Diversified 0.58 Manager D EM Debt Opportunities 0.26
Bloomberg Barclays US Treasury
0.73 Manager A TIPS 0.82
TIPS
The views expressed represent the Manager’s assessment of the portfolio and market environment as of the date indicated, and should not be considered a
recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice.
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 18Conviction proof point – capital preservation
Protection of client principal is vital
Accessing non-aggregate sectors can be challenging if not used properly
Max Drawdown–10 Years Yield to Worst (12/31/17)
Bloomberg Barclays US Corporate High Yield -33.31 5.72
Bloomberg Barclays CMBS ERISA Eligible -32.06 2.87
Bloomberg Barclays EM USD Aggregate -25.62 4.51
Bloomberg Barclays US Corporate -15.42 3.25
Bloomberg Barclays ABS -13.82 2.26
Bloomberg Barclays Global Aggregate -10.08 1.66
Bloomberg Barclays Municipal -6.21 2.36
Bloomberg Barclays US 1-3 Year Credit -5.15 2.30
Bloomberg Barclays US Treasury -4.30 2.19
Bloomberg Barclays US MBS -2.85 2.91
-40.00 -30.00 -20.00 -10.00 0.00 10.00
Chasing yield for yield’s sake can introduce significant volatility
Source: Morningstar, Barclays Live.
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 19Blended Portfolio analysis
Growth of $1,000 & Rate of Return
Fixed Income Portfolio Allocations
Percentage
Strategy
Allocated
Aggregate 23.08%
EM Debt Opportunities 17.95%
HY bond 17.95%
Bank Loan 17.95%
Return Analysis Performance Statistics - Versus Index
MIM Short Duration
Bloomberg Bloomberg 15.38%
Sample: Blend Credit
Statistic Barclays US Statistic Barclays US
12-12-18
Aggregate Aggregate
TIPS 7.69%
YTD -0.93% -2.38% Alpha 4.10%
1 Year Return 0.03% -2.05% Beta 0.48
3 Year Return 4.39% 1.04% Tracking Err 4.01%
5 Year Return 3.23% 1.83% Excess Rtn 2.55%
7 Year Return 4.21% 1.89% Info Ratio 0.64
Cumulative Return 62.33% 29.96% Bench Rtn 2.93%
Sharpe Ratio (FTSE 1.30 0.93 Bat Avg 0.63 Source: eVestment, September 2018
3 Mo. T-Bill )
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 2004
Investment philosophy and process
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.Corporate team structure
$5.1 billion in AUM as of September 30, 2018
Mike Wildstein CFA Wayne Anglace CFA Craig Dembek CFA Kashif Ishaq
IG Corporate Credit Head Portfolio Manager Global Head of Credit Research Global Head of Corporate Trading
17 years experience 20 years experience 24 years experience 16 years experience
11 years with the firm 11 years with the firm 13 years with firm 15 years with the firm
Portfolio managers Experience Credit analysts Experience Credit analysts Experience
Mike Wildstein 17 years Craig Dembek 24 years Jason Argyris CFA 11 years
Wayne Anlace 20 years Greg Ball 27 years Sam McGarity CFA 10 years
Joseph Zalewski 21 years Robert Perry 10 years
Adrian David CFA 18 years Andrew Hill CFA 9 years
Traders Experience Guido DeAscanis CFA 18 years Andrew Bostick CFA 6 years
Kashif Ishaq 16 years Jack Kenefic CFA 15 years James Nieuwland 5 years
Scott Schroeder 16 years Bryant Bankhead 15 years Cristina Yumin Shen CFA 4 years
Molly Belcher 4 years Sajod Moradi CFA 13 years Sam Dushkin 4 years
Adam Daman CFA 12 years Georgina Blakeley 1 years
Markets and Quantitative Research - Dean Stewart / Terry O’Brien : 11 analysts
Investment Solutions and Strategy - Chris Hanlon / Ralph Divino / Alex Clamen : 10 Client Portfolio Managers / Strategists
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 22The investment philosophy
We believe that superior securities research best captures the alpha
opportunities that inefficient markets create.
• Proprietary, in-depth fundamental research
• Bottom-up approach to portfolio construction
• Attractive risk/reward characteristics driven by
top down risk management
Exploiting market inefficiency for a
consistent source of excess returns
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 23Macquarie Short Duration Credit at a glance
Disciplined approach to delivering results for our clients
Collaboration Consistency Conviction
• Experience • Income • Fundamental research
• Flat Structure • Capital preservation • Bottom up approach
• Access with • Liquidity • Top down risk
customization management
10 Yr Risk/Reward through 9/30/18 MIM Short
6.00 Duration
5.00 Credit (Gross
of Fees, Percentile
4.00
Returns
As of 9/30/18 annualized) Rank*
3.00
2.00 1 Year 0.47 61
1.00
3 Years 2.34 8
0.00
0.00 1.00 2.00 3.00 4.00 5.00 6.00 5 Years 2.87 1
Standard Deviation
MIM Short Duration Credit Carve-Out eVestment Short Duration FI Median 10 Years 5.11 1
BBgBarc US 1-3 Yr Credit
Note: These returns were requested by the prospect. The Short Duration Credit “Carve Out” (gross-of-fee) returns are derived from
*eVestment peer group as of 9/30/18
our attribution system. This system gives us the ability to remove all non-credit securities from the representative account of the
Limited – Term Multisector Composite. This leaves the remainder of the portfolio intact from which we derive monthly gross-of fee
returns. We are unable to derive returns prior to 6/30/2008.
MIM Short Duration Credit 3Q18
Experience, discipline, and a consistent focus
For Institutional Investors and Investment Professionals Only.
PAGE 24Process in motion
Risk management/
portfolio review
Sell discipline
• Collaboration every step of the way
• Fundamental approach to security Research
selection Portfolio Investment
construction universe
• Consensus-based decision-making Portfolio
management
Trading
• Robust culture of risk management
Security
selection Idea generation
by team
Conduct proprietary
research
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
No monopoly on great ideas
PAGE 25Idea generation
Idea generation based on collaboration
Research Trading Portfolio Management
• Fundamental, bottom-up process • Market access & intelligence • Optimizing fit with objectives
• Integrated ratings coverage • Secure optimal new issue • Synthesizing inputs
• Company management visits allocation • Risk management & monitoring
• Assigns security investment • Relative value / curve trading • Compliance monitoring
objectives • Portfolio liquidity management
No monopoly on good ideas
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 26Proprietary research
Powered by research
Proprietary, bottom-up process Analysts are industry experts
• In-house / Analyst developed models • Cover sectors from AAA to CCC
• Regular interaction with management teams • 13 years average experience / 17 years for team leads
• Rooted in team culture • No hand-off of coverage on upgrades/downgrades
Research is a career path Teams within the team
• Ownership within the portfolio construction process • Mentorship and support from senior team members
• Natural extension of flat organizational structure • Back-up experience across the team
• Compensation allows for easy commitment to the role • Coverage ensured at all times
Our credit analysts are career professionals with a critical voice in the process
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 27Proprietary research
Global corporate research team structure
Craig Dembek, CFA
Global Head of Credit Research
Craig Dembek, CFA Jason Argyris, CFA Sajod Moradi, CFA Guido DeAscanis, CFA Joseph Zalewski Adrian David, CFA Robert Perry
Banking Technology Telecom Energy / E&P Distressed debt Global infrastructure European industrials
Financial services Healthcare Retail Pipelines W orkout specialist Australian non-financial
REITs Supermarket / Refineries corporate
Drugstores Oilfield services
Gaming
Greg Ball Andrew Bostick, CFA Sam McGarity, CFA Andrew Hill, CFA Adam Daman, CFA TBD
Building materials Industrials Cable / Satellite Publishing Utilities APAC financials European generalist
Business services Aerospace / Defence Theatres Chemicals Structured products
Homebuilders Transportation Diversified media
Paper / Packaging Broadcasting
James Nieuwland, CFA Bryant Bankhead Cristina Shen, CFA Jack Kenefic, CFA
Consumer products Autos / Auto parts
Insurance Food / Beverage /
Lodging / Leisure Tobacco Metals and mining
Restaurants Health insurers Steel
Pharmaceuticals
Georgina Blakeley Sam Dushkin
Industry experts across ratings and capitalization structure
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 28Security selection
● Mispriced security
● Liquidity and sponsorship imbalance
● Special situations
● Material improvement in credit quality
● Risk premium arbitrage (crossover candidates)
● Underfollowed space given buy side coverage model
● Improving fundamentals
● Mispriced relative to peers
● Identifiable catalyst
● Foundation credits
● Target optimal yield per unit of duration
● Stable fundamentals/predictable cash flows
Every bond we buy has a specific role in your portfolio
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 29Portfolio construction
Portfolio construction to achieve the unique needs of our clients
Optimal utilization of risk factors
Client Income Client
centric communication
Disciplined approach to sector exposure weightings
Multiple sources of return and diversification of risk
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 30Sell discipline
Sell discipline that is proactive and informed by the unique circumstances of the
client
Fundamental
change
Spread
Corporate actions volatility
Proactive
Relative opportunities /
Client liquidity profiles Sell realized gains
Discipline
Strategic execution within client parameters
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 31Risk management / portfolio review
Roger Early - Global Co Head of Fixed Income Investments
Formal monthly team meetings
Top Down/
Performance Liquidity/ Relative Value
Macro Risk
Attribution Trading Risk Review
Review
Co-chairs: Co-chairs: Chair: Chair:
David Hillmeyer Paul Matlack Kashif Ishaq Paul Grillo
Senior Portfolio Fixed Income Head of Senior Portfolio
Manager Strategist Corporate Bond Manager
Trading
Brian McDonnell Michael
Senior Portfolio Wildstein
Manager Senior Portfolio
Manager
Adam Brown
Senior Portfolio
Manager
Risk monitoring and control in conjunction with our
bottom-up, fundamental security selection process
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 32Risk management / portfolio review
Risk management & portfolio review to meet client objectives
Portfolio Risk Management Macquarie Group Risk Functions
Operational Regulatory
Internal Audit
Fixed Income Risk Management Oversight Group Risk Compliance
Paul Matlack (chair) Bill Keelan (CRO) Terry O’Brien • Firm-wide • Procedures • Independent
Roger Early Chris Hanlon operational risk designed to assurance to
• Defines the detect violations senior
group risk of federal management
• Monitor and report on risk attributes and processes framework securities laws. and the Board
• Independent viewpoint • Review of • Monitors • Triennial audit
• Leverage Risk and Portfolio Review Process and Fixed Income Risk internal controls regulatory of businesses
Systems and audits of environment
MIM activities.
• Daily post-trade
client guideline
compliance
Risk & Portfolio
Portfolio Fixed Income Quant
Review
Management Group
(Monthly
(Mike Wildstein) (Terry O’Brien) Independent functional teams operating outside of the
meetings)
investment management environment
Independent oversight in a cohesive risk management framework
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 3305
Portfolio performance and characteristics
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.Performance (supplemental)
MIM Short Duration Credit “Carve Out”
Periods ended September 30, 2018
MIM Short Duration Credit “Carve Out” Bloomberg Barclays 1-3 Year Credit Index
(gross of fees)
5.11
Percent
3.03
2.87
2.34
1.43 1.39
0.66
0.47
1 year 3 years 5 years 10 years
Note: These returns were requested by the prospect. The MIM Short Duration Credit “Carve Out” (gross-of-fee) returns are derived from our attribution
system. This system gives us the ability to remove all non-credit securities from the representative account of the Limited – Term Multisector Composite. This
leaves the remainder of the portfolio intact from which we derive monthly gross-of fee returns. We are unable to derive returns prior to 6/30/2008.
See performance, benchmark, and fee disclosures on page titled “Composite statistics and performance.”
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 35Strategy characteristics
Attractive risk-adjusted results
Strategy Characteristics over 10 years
Number of positive Number of negative
Sharpe ratio Information ratio
months months
MIM Short Duration Credit “Carve Out” 1.61 1.35 86 34
BB BC US 1-3 Yr Credit index 1.58 - 88 32
eVestment Short Duration Peer Median 1.52 -0.55 - -
Note: These returns were requested by the prospect. The Short Duration Credit “Carve Out” (gross-of-fee) returns are derived from our attribution system.
This system gives us the ability to remove all non-credit securities from the representative account of the Limited – Term Multisector Composite. This leaves
the remainder of the portfolio intact from which we derive monthly gross-of fee returns. We are unable to derive returns prior to 6/30/2008.
Past performance does not guarantee future results.
Source: eVestment US Short Duration Fixed Income (monthly data)
See performance, benchmark, and fee disclosures on page titled “Composite statistics and performance.”
Data as of Sept 30, 2018
*Oct ‘08 to Sept ’18, in this time period the benchmark had the same number of positive/negative returns
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 36Performance (supplemental)
MIM Short Duration Credit “Carve Out”
Periods ended September 30, 2018
Consistent excess returns
Rolling 3 year periods October 2008 – September 30, 2018
12.00
10.00
MIM Short Duration Credit (gross)
8.00
6.00
4.00
Excess Return
2.00 OUTPERFORM
91 of 91 periods
0.00
0.00 2.00 4.00 6.00 8.00 10.00 12.00
Bloomberg Barclays US 1-3 Yr Credit Index
Note: These returns were requested by the prospect. The MIM Short Duration Credit “Carve Out” (gross-of-fee) returns are derived from our attribution
system. This system gives us the ability to remove all non-credit securities from the representative account of the Limited – Term Multisector Composite. This
leaves the remainder of the portfolio intact from which we derive monthly gross-of fee returns. We are unable to derive returns prior to 6/30/2008.
MIM Short Duration Credit 3Q18 Past performance does not guarantee future results.
For Institutional Investors and Investment Professionals Only.
PAGE 37Portfolio characteristics
MIM Short Duration Credit “Carve Out” as of September 30, 2018
Bloomberg Bloomberg
Barclays US Barclays US
MIM Short 1–3 year credit Portfolio MIM Short 1–3 year credit
Sector Exposures duration credit index Characteristics duration credit index
Yield to maturity (%) 3.71 3.24
Industrial 34.79% 38.97%
Yield to worst (%) 3.59 3.23
Utility 18.83% 3.30% Effective duration (years) 2.84 1.93
Financial 45.77% 33.82% # of credit issuers 143 1318
NonCorp 0.61% 23.91%
Bloomberg
Barclays US
MIM Short 1–3 year credit
Credit Quality duration credit index
AAA 0.26% 18.10%
AA 9.83% 15.61% The portfolio information shown above is that of a representative Short Duration Credit Fixed
Income portfolio. Holdings, weightings and characteristics are current as of the day indicated, are
A 41.18% 34.64% subject to change, and may not reflect the current portfolio. Total may not equal 100% due to
rounding.
BBB 46.52% 31.65% See performance, benchmark, and fee disclosures on page titled “Composite statistics and
Below BBB 2.20% 0.00% performance.”
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 38Why Macquarie
Deep, experienced global team
• Over 115 dedicated fixed income investors
• Flat, collaborative structure fosters teamwork and idea generation
• Integrity and accountability produce superior client results
Clear, disciplined investment process
• Bottom-up, fundamental research drives excess return
• Active management, focused on both opportunity and capital preservation
• Consistent, time-tested approach
A true partnership
⚫ A culture centered on access to key investment professionals and customized solutions
⚫ Delivering significant expertise across broad markets and services
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only. As of 9/30/18
PAGE 39Active credit allocation
MIM Short Duration Credit offers active allocation based on the team’s outlook for risk &
return.
By actively allocating across fundamentally sound corporate credits and other high quality sectors, MIM Short
Duration Credit seeks to provide a competitive level of total return while minimizing risk through full credit cycles.
Expansion Expand credit quality — increase high yield corporates
Peak Reduce credit risk and favor more resilient credits
Overweight high-quality credits, increase treasury,
Contraction
agency sectors
Increase risk profile — add corporate bond allocation
Trough
favoring more cyclical credits
Increase high yield corporates and reduce non-
Recovery
corporate sector allocations
*These potential portfolio adjustments may change over time and will be based on the investment team’s ongoing evaluation of economic and market conditions, together with its
assessment of appreciation potential within various fixed income sectors.
Chart and table are for illustrative purposes only.
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 40Environment, Social and Governance issues
Ensuring the sustainability of our investments
⚫ ESG is embedded into our bottom-up
fundamental research process, incorporating
all relevant aspects into our credit analysis
⚫ A very broad range of ESG factors are
considered to identify possible negative credit
impacts
⚫ As an added layer of analysis, we take into
account the ESG scores and analysis from a
third party ESG research provider (MSCI)
⚫ The materiality of the ESG issues to the
overall credit profile is then factored into our
investment decision
⚫ We are a global signatory to the UN PRI
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 41Biography
Michael G Wildstein
Executive Director
IG Corporate Credit Head
⚫ Michael is a member of the firm’s fixed income portfolio management
team. He manages corporate credit-related portfolios. Before joining the
11 years at Macquarie team, he was a senior corporate bond analyst focused on the
17 years relevant experience telecommunications sector for high-grade and high yield portfolios.
— Bachelor degree - ⚫ Michael joined Delaware Investments, a division of Macquarie
University of Tampa Investment Management, in March 2007 as a Corporate Bond Analyst.
— MBA – Drexel University ⚫ Prior to this, Michael spent five years at Merrill Lynch Investment
Managers in various roles that included portfolio manager for the core
— CFA Charterholder
bond team, corporate bond research analyst, and corporate bond
trader.
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 42Biography
Wayne A Anglace
Senior Vice President
Senior Portfolio Manager
⚫ Wayne currently serves as a senior portfolio manager for the firm’s
corporate and convertible bond strategies.
11 years at Macquarie
20 years relevant experience ⚫ Wayne joined Macquarie Investment Management (MIM) in March 2007
as a research analyst for the firm’s high grade, high yield, and
— Bachelor degree - convertible bond portfolios.
Villanova University
⚫ Prior to this, Wayne spent more than two years as a research analyst at
— MBA – Saint Josephs Gartmore Global Investments for its convertible bond strategy. From
University 2000 to 2004, Wayne worked in private client research at Deutsche
Bank Alex. Brown in Baltimore, where he focused on equity research,
— CFA Charterholder
and he started his financial services career with Ashbridge Investment
Management in 1999.
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 43Composite statistics and performance
Limited-Term Multisector Fixed Income
3-Year Annualized
Standard Deviation (%) As of December 31st
Bloomberg Bloomberg
Barclays 1-3 Year Barclays 1-3 Year
Composite return Composite return Government/Credit Composite Internal Government/Credit Composite Assets Total Firm Assets
Period End gross-of-fees (%) net-of-fees (%) Index return (%) dispersion (%) Composite Index Number of Portfolios ($mm) ($mm)
2017 2.8 2.3 0.8 n/a 1.2 0.7Important notice and disclaimer
The performance data quoted represent past performances; past performance does not securities with at least one year to maturity and at least $250 million par amount outstanding.
guarantee future results. The Bloomberg Barclays Long U.S. Treasury Index measures the performance of U.S. Treasury
Diversification may not protect against market risk. bonds and notes that have a remaining maturity of 10 or more years.
The Bloomberg Barclays U.S. Corporate Investment Grade Index is composed of U.S. dollar–
The views expressed represent the Manager's assessment of the market environment as of denominated, investment grade, SEC-registered corporate bonds issued by industrial, utility, and
December 2018, and should not be considered a recommendation to buy, hold, or sell any financial companies. All bonds in the index have at least one year to maturity.
security, and should not be relied on as research or investment advice. The Bloomberg Barclays U.S. Corporate High-Yield Index is composed of U.S. dollar–
Advisory services may be provided by an affiliate. denominated, noninvestment grade corporate bonds for which the middle rating among Moody’s
All third-party marks cited are the property of their respective owners. Investors Service, Inc., Fitch, Inc., and Standard & Poor’s is Ba1/BB+/BB+ or below.
Fixed income securities and bond funds can lose value, and investors can lose principal, as The J.P. Morgan Emerging Markets Bond Index Plus (EMBI+) tracks total returns for actively
interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability traded external debt instruments in emerging markets. It includes U.S. dollar–denominated Brady
bonds, Eurobonds, and traded loans issued by sovereign entities.
to make interest and principal payments on its debt.
Bloomberg Global Developed Sovereign Bond Index is a rules-based market-value weighted index
High yielding, noninvestment grade bonds (junk bonds) involve higher risk than investment grade
engineered to measure the fixed-rate local currency public obligations of developed countries.
bonds. The index is USD based and contains issues from the U.S., Canada, Europe and Pacific Rim
Credit risk is the risk of loss of principal or loss of a financial reward stemming from a borrower's countries.
failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a The ICE BofAML 1–3 Year US Treasury Index (formerly known as the BofA Merrill Lynch 1–3 Year
borrower expects to use future cash flows to pay a current debt. Investors are compensated for US Treasury Index) is composed of US Treasury notes and bonds with maturities of at least one
assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation. year but less than three years. It does not include inflation-linked US government bonds.
Credit risk is closely tied to the potential return of an investment, the most notable being that the The Bloomberg Barclays 1–3 Year US Government/Credit Index is a market value–weighted index
yields on bonds correlate strongly to their perceived credit risk. of government fixed-rate debt securities and investment grade US and foreign fixed-rate debt
The Strategies may also be subject to prepayment risk, the risk that the principal of a bond that is securities with average maturities of one to three years.
held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than St Louis Federal Reserve Bank Financial Stress Index – The STLFSI measures the degree of
what the bond was paying. A portfolio may then have to reinvest that money at a lower interest financial stress in the markets and is constructed from 18 weekly data series: seven interest rate
rate. series, six yield spreads and five other indicators. Each of these variables captures some aspect
CDS = Credit Default Swap; MBS = Mortgage Backed Security; ABS = Asset-Backed Securities ; of financial stress. Accordingly, as the level of financial stress in the economy changes, the data
series are likely to move together.
CMBS = Commercial Mortgage Backed Security; YTW = Yield to worst, which is
The S&P/LSTA (Loan Syndications and Trading Association) Leveraged Loan Index is a broad
Index performance returns do not reflect any management fees, transaction costs or expenses.
index designed to reflect the market-value-weighted performance of U.S. dollar-denominated
Indices are unmanaged and one cannot invest directly in an index.
institutional leveraged loans.
The Bloomberg Barclays U.S. Aggregate Index measures the performance of publicly issued
investment grade (Baa3/BBB- or better) corporate, U.S. government, mortgage- and asset-backed
MIM Short Duration Credit 3Q18
For Institutional Investors and Investment Professionals Only.
PAGE 45Important notice and disclaimer
The following registered investment advisers form part of Macquarie Group’s investment
management business, Macquarie Investment Management: Macquarie Investment Management
Business Trust, Macquarie Funds Management Hong Kong Limited, Macquarie Investment
Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited,
Macquarie Investment Management Europe Limited, and Macquarie Capital Investment
Management LLC.
Diversification may not protect against market risk.
For recipients in the United States, this document is provided by Macquarie Investment
Management Business Trust (MIMBT). Institutional investment management is provided by
Macquarie Investment Management Advisers (MIMA), a series of MIMBT. MIMBT is a U.S.
registered investment advisor, and may not be able to provide investment advisory services to
certain clients in certain jurisdictions.
Macquarie Group, its employees and officers may act in different, potentially conflicting, roles in
providing the financial services referred to in this document. The Macquarie Group entities may
from time to time act as trustee, administrator, registrar, custodian, investment manager or
investment advisor, representative or otherwise for a product or may be otherwise involved in or
with, other products and clients which have similar investment objectives to those of the products
described herein. Due to the conflicting nature of these roles, the interests of Macquarie Group
may from time to time be inconsistent with the Interests of investors. Macquarie Group entities
may receive remuneration as a result of acting in these roles. Macquarie Group has conflict of
interest policies which aim to manage conflicts of interest.
All third-party marks cited are the property of their respective owners.
© 2018 Macquarie Group Limited
MIM Short Duration Credit 3Q18 690602 – 12/18
For Institutional Investors and Investment Professionals Only.
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