Durable. Notre engagement.

Meet the Manager: Nachu Chockalingam

13 June 2023 |
Active ESG
In this latest manager profile, Nachu Chockalingam walks us through the green flags she looks for when making an investment decision, the importance of variety in her day-to-day role, and where you can find her on the weekends.

What’s your role at Federated Hermes?

I work as a portfolio manager in our Credit team, with a particular focus on our sustainability-themed strategies.

How did you get started in your career?

Somewhat oddly, I think I knew I wanted to work in finance from a pretty young age but didn’t really know what area to focus on. We had lots of family friends who were accountants and that was pitched to me as a very ‘stable’ career, and I probably would have gone down that route had I not spent one summer when I was at university doing an internship at JPMorgan.

During my 10 weeks at the bank I absolutely fell in love with markets and knew that was what I wanted to do. I spent 13 years at JP Morgan, predominantly looking at European and emerging market credit. I then moved to the buyside and spent five years at Ontario Teachers in Canada and the past five years here at Federated Hermes.

What do you enjoy most about your job?

The thing I enjoy most about my job is the variety, and the fact that no two days are the same. I also really enjoy ‘digging’ into our companies ­- not only to understand what makes them tick and what makes them good investments but, with my sustainability hat on, often I have a front row seat in seeing how they’re adapting their operations to benefit the environment and society at large.

How would you characterise your style as an investor?

In one word: pragmatic. But to give some more detail around that, we’re high-conviction investors managing credit on a global basis. We make use of a company’s full capital structure to manage risk and performance, mindful of the attributes of fixed income such as duration and convexity because there’s clearly risk to be managed and alpha to be made in these areas.

One of the biggest risks we are thinking about right now is where the next break in the system may come from and how, if at all, will it be supported by the authorities.

When considering making an investment decision, what key metrics or attributes do you look for the most?

Ultimately as a bondholder our upside is somewhat capped, so we’re looking to invest in companies where the fundamentals are strong enough now and in the future to enable them to service their debt each year and pay us back when our obligation’s due. What’s been really interesting to me in our dual objective strategies (i.e. ones with financial and sustainable objectives) has been the challenge to not only identify good quality companies that have bonds offering decent value but also businesses where there’s scope to convert the potential of returns to society and the environment into realised returns for our clients.

Same question as above but for exits from the portfolio: What would trigger a sale or an exit of a holding?

Three main triggers I’d highlight are:

  1. The investment case has played out and the bonds offer no or very limited value and we can deploy our capital to create more alpha elsewhere.
  2. The investment case has changed materially to the downside either because of poor operations with no turnaround in sight or because the company has new owners like financial sponsors who put a lot of leverage on the company weakening our financial position.
  3. In our sustainable strategies, either our engagement is regressing or failing or the company is backtracking on its sustainability commitments.

What are the strengths of the Credit team?

We have a very collegiate team dynamic where everyone has the opportunity to share their views. A lot of our investment decisions – be it top-down risk allocation or bottom-up company selection – are made in committee-style discussions where views are discussed in depth and debated at length to ensure there’s vindication for them and our timing is appropriate.

Given the current market and macroeconomic backdrop how should investors position themselves in the coming months?

One of the biggest risks we are thinking about right now as a desk is where the next break in the system may come from and how, if at all, will it be supported by the authorities. I read an interesting quote recently which said “when central banks hit the brakes, someone goes through the windshield”. Sadly, we don’t know who’s going to be in the passenger seat each time, but I do think we’re getting a better picture of where the pockets of stress are. So, fingers crossed the extremity of the moves we’ve seen recently don’t come back to haunt us.

In terms of why I think investors should be looking at credit now, I’d highlight a couple of main reasons. Firstly, all-in yields remain attractive and, for some segments of credit, are now close to historic highs. Secondly, corporate fundamentals remain largely solid, especially for the type of issuer we hold, as companies have been heavily focused on deleveraging and bolstering their liquidity over the past few years. We believe this means they’ll be able to weather the inevitable upcoming slowdown better.

What are your interests out of work?

I like to travel. I also like to read because I consider myself a lifelong student. Most people feel that education ends at graduation but I felt that for me it was just the beginning of a lifelong journey. That said, if you were to look for me on a weekend you’d definitely find me on a sideline somewhere cheering for my two young sons.

To meet more of our managers, please explore the ‘Meet the Manager’ hub

To find out more about our Sustainable Global Investment Grade Credit Strategy, please explore our capability page.

Please also read our Climate Change High Yield Annual Report 2022

Finally, for further insights on fixed income, watch our video insight with Fraser Lundie, Head of Fixed Income (Public Markets).

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