Spotlight on Jeff Klingelhofer, Co-Head of Investments & Managing Director, Thornburg Investment Management
Global Thought Leader Spotlight
Jeff Klingelhofer, Co-Head of Investments & Managing Director, Thornburg Investment Management
In my role as the co-Head of Investments, at Thornburg Investment Management I am responsible for driving the investment process at the firm level, ensuring that all investment teams at Thornburg Investment Management are properly resourced and are driving toward their outcomes in a consistent, repeatable way.
My specific area of focus is within fixed income as a portfolio manager on Thornburg’s Global Fixed Income team, for which we manage approximately US$15 billion in assets.
My background is in the securitised credit space, and I work closely with members of the Global Fixed Income team to ensure proper implementation of securitised credit strategies within portfolios.
The fixed income markets are grappling with the following themes going forward:
A change in the central bank reaction function, particularly at the U.S. Federal Reserve, from being proactive to reactive in how monetary policy tools are utilised.
Navigating an investing environment where volatility is trending higher in the absence of central bank support, and where at least moderate dislocations are occurring once every 2-3 years.
The role of fixed income going forward now that the cost of capital is higher, and how return, risk, and correlation relationships to other asset classes will evolve.
We believe fixed income investing over the next few years is going to look quite different than the past few years.
Our expectation is for market volatility to rise as central banks no longer desire to suppress the cost of capital, to push demand forward and stimulate growth. With rising volatility comes the risk of dislocation, which in our view calls for fixed income portfolios and fixed income asset allocation to be managed with a much more nimble and flexible approach, which contrasts with the predominant ‘siloed’ approach many managers take to fixed income investment management. The speed which credit spreads widen and subsequently recover has increased over the past decade, and most notably during the COVID crisis. This affirms our conviction that flexibility with respect to both a manager’s investment style and institutional investor asset allocation decision making will hold greater importance in achieving successful outcomes.
For investors, we believe the implications focus around 1) the role of fixed income in the broader portfolio and 2) how best to capture value in an environment characterised by both higher rates and higher volatility.
Investors need to re-evaluate how the fixed income asset class will behave from a return, risk, and correlation perspective. Higher rates and positive real yields are an opportunity for the fixed income asset class to reassert itself as a provider of ballast to the broader portfolio. Further, the higher cost of capital should have investors rethink how much illiquidity risk they need to take going forward. In the previous era of central bank support, the correlation between stocks and bonds was positive. With the central bank ‘put’ in hibernation, it is very possible to see the correlation return to negative as was the case for markets prior to 2000.
We believe higher rates will be coupled with higher volatility. A moderate market dislocation now occurs once every 2-3 years and we expect this trend to continue. For investors, this means the need to incorporate more flexibility in how manager’s capture opportunity and how allocators manage asset allocation. We think ‘style box’ investing will be more challenged - higher volatility favour strategies with a broader opportunity set, and managers who can be quick to capture dislocation. Allocators, if possible, should incorporate this flexibility into their own allocation decision making, as downside protection and the ability to reallocate capital to dislocated markets can enhance long-term excess returns.
Jeff will be presenting at Global Investment Institute’s upcoming Fixed Income & Alternatives Investment Forum, taking place on Thursday, 7 September 2023 at the Westin Melbourne, Victoria.
To register your interest in attending, click here or for more information email zlatan.kapetanovic@globalii.com.au.
Jeff Klingelhofer, Co-Head of Investments & Managing Director, Thornburg Investment Management
Jeff is co-head of investments for Thornburg Investment Management. He is responsible for driving the investment process at the firm level. Jeff is also a portfolio manager on multiple strategies. He joined the firm in 2010, then was promoted to associate portfolio manager in 2012. In 2015, Jeff was made portfolio manager and managing director.
Jeff earned a BA in economics with a minor in business from the University of California at Irvine, and an MBA from the University of Chicago Booth School of Business in 2010. He is also a CFA charter holder. Prior to joining Thornburg Investment Management, Jeff spent four years with PIMCO, where he was responsible for monitoring portfolio leverage and risk tolerances.
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