Goldman Sachs Asset Management (GSAM) has introduced the Goldman Sachs Local Emerging Markets Debt Fund, which seeks a high level of total return consisting of income and capital appreciation by investing in sovereign and corporate debt denominated in the currency of the issuer.
The Fund provides a vehicle to tap into GSAMs belief that such debt represents the next stage in the lifecycle of emerging markets debt. The new Fund will be managed by the same team that heads the Goldman Sachs Emerging Markets Debt Fund launched in August 2003.
“There has been a remarkable transformation of local debt markets in emerging market economies over the last few years. Local markets have deepened and become more liquid. As a result of the sound economic policies developing in these emerging market countries, the investor base has diversified beyond the conventional domestic banking sector to include foreign and local institutions, including pension plans, hedge funds and insurance companies,” says Owi Ruivivar, portfolio manager.
Attempted macro-stabilization programmes in emerging market countries, including prudent fiscal policies, credible monetary policies and floating currencies to protect countries from external shocks, have contributed to the overall reduction in sovereign debt risk and volatility and have laid the groundwork for greater local markets issuance.
GSAM believes this new asset class can offer investors several benefits, including: increased diversification with a low correlation to other assets classes; compelling risk/return characteristics compared to external emerging markets as well as other asset classes; and a growth opportunity, as evidenced by the five-fold increase in market value over the last five years of the JP Morgan Global Bond Index Emerging Markets (GBI-EM), which includes 14 countries and is the benchmark for the Goldman Sachs Local Emerging Markets Debt Fund.
According to GSAM, the Goldman Sachs Local Emerging Markets Debt Fund and Goldman Sachs Emerging Markets Debt Funds are well suited satellites in a “Core and Satellite” investment strategy. In a Core and Satellite strategy, equity market and interest rate risk are allocated to a portfolios core, which includes diversification and low volatility, while less correlated active risk is allocated to complementary or satellite investments, which feature active, skilled portfolio management. The result is a better, more efficient portfolio construction with a higher return potential.
The Goldman Sachs Local Emerging Markets Debt Fund is offered in A and C shares, both which have a $1,000 minimum investment requirement. The Fund also offers Institutional and Class I shares.
GSAMs Global Fixed Income Investment Management Team manages approximately $200 billion in municipal and taxable fixed income assets for retail, institutional and high net worth clients, with over $2.5 billion in emerging markets debt as of 31 December 2007.