We recently stumbled across a video interview on Invesco AIM's website that features Karen Dunn Kelley, money fund veteran and now CIO of Worldwide Fixed Income. Dunn Kelley talks about Invesco AIM's processes and avoidance of troubles, about managing liquidity, and about the future of fixed income. We transcribe the money fund-related highlights below.
Interviewer Lynn Bernard says, "Not long ago, investors were shocked to read in the headlines that billions of dollars were being pumped into money market funds to protect them. But Invesco Worldwide Fixed-Income did not have to prop up its money market products. Tell me about the firm's emphasis on safety."
Dunn Kelley responds, "We've been in this business for 29 years. And it is really the beginning of that business where we really started understanding what safety was about. The founder of that business used to say, 'The best is none too good for our money market funds.' Therefore we structure them in such a way that we are one of the few money market managers that separated out credit from portfolio management."
She continues, "The credit people understood minimal credit risk. Money market funds are obligated to buy minimal credit risks.... That risk ... has to be understood by the adviser, not by any third party, rating agency or credit advisers.... The portfolio management understood that the three philosophical tenents of money market management were safety, liquidity and yield."
"Safety is a very small equation and it says, 'Portfolio assets, plus portfolio configuration, plus operational risk, has to equal a dollar, a euro, a sterling, whatever your currency is. Liquidity means that those customers want that dollar back on a daily basis. And yield is really a byproduct of those two. So when you start with a structure that understands the separation, and creates a culture of minimal credit risk and a philosophy that augments it, you clearly have the ability to create and provide safety," says Dunn Kelley.
Finally, she says, "We think that there are two major reasons that fixed income is going to be a very important asset class going forward. The first is the demographics ... and then the other is risk appetite.... I think that fixed-income is going to continue to grow and is going to be a very important asset class."
