Fixed Income Investments

VER’s investments in fixed income instruments are divided into two categories: liquid and other fixed income investments. According to the standing guidelines issued by the Ministry of Finance, a minimum of 35 per cent of all VER’s investments must be made in fixed income instruments.

Liquid fixed income investments

Investments in liquid fixed income instruments are designed to offset the risks associated with equities. Under normal market conditions, the defensive element in the portfolio consisting of government bonds and money market instruments has a negative or very weak correlation to equities. Government bonds are used primarily for generating income through the management of interest rate risks by modifying the portfolio duration and interest curve position.

The money markets serve as a kind of liquidity buffer when investments in the other asset classes increase or decrease.

By contrast, the most risk-laden investments in the fixed income portfolio exhibit a stronger correlation with listed equities. In these asset classes, the objective is to earn by taking risks in addition to managing the interest rate risks. These categories include investments in corporate bonds and emerging market debt.

Volatility during the year is high with most of the trading consisting of sovereign bonds.

Other fixed income investments

The other fixed income instruments primarily consist of investments in illiquid private credit funds. While VER’s private credit portfolio is currently weighted to low-risk strategies like senior and real estate debt, it may also include funds involving a higher level of risk such as distressed credit funds.

 

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