For more information contact: emailus@marcusevans.com An interview with Simon Pilcher, Chief Executive of Fixed Income, M&G Investments, a fund management company at the marcus evans European Pensions & Investments Summit 2013 who shares his thoughts on looking at investment opportunities outside the public bond Markets and getting higher returns by offering bank replacement capital. The 14th European Pensions & Investments Summit delivered more than 25 hours of world class briefings from some of the leading minds in the pensions industry including: AP Fonden 7, THEAM, Deutsche Bank, Institute for Liberty and Democracy, The People's Pension, China Reform Foundation and many more. Join the 2015 Summit along with leading regional pension investors and global asset managers in an intimate environment for a focused discussion of key new drivers shaping institutional investment strategies today. For more information contact: emailus@marcusevans.com

1. Looking at Investment Opportunities
outside the Public Bond Markets
lending in particular, so even if the typically issued junior to the loan, but
return on capital is attractive, they are offer similar sorts of yield. They also
still looking to shrink their balance sheet offer a floating rate income, whereas
in certain markets. high yield bonds are typically fixed rate.
When you layer liquidity requirements If interest rates rise, leveraged loans
and Basel II and III on top of that, the will give better protection than high
result is that many banks are either yield bonds. If things go badly wrong,
unwilling or unable to lend. If you look loans will get a much higher recovery
at bank lending against social housing rate because they are the most senior
for example, loans have historically part of the capital structure. Therefore,
been for 25 - 30 years. Banks are now losses will be lower.
recognising that this is too risky for
Interview with: Simon Pilcher, Chief them, because they borrow short, and For these reasons, we think the loan
Executive of Fixed Income, M&G so borrowers in social housing and market is currently superior to the high
Investments many other areas of the economy now yield market, if an experienced manager
need to find alternative sources of long- handles it.
term capital, such as insurance
“Institutional investors should look companies or pension funds.
outside the public bond markets to find
attractive relative value,” Simon Pilcher, Why should institutions, such as
Chief Executive of Fixed Income, M&G
Investments advised. “They need to
pension funds, step in with
replacement capital?
Institutions
find the areas of the world where the
poison of quantitative easing has not The principal reason is because they can
can achieve
caused future returns to disappear
towards zero, and that is to be found in
get better returns in an era where
government bonds and all forms of better returns
the areas where banks either cannot
lend or are having to reduce their
public bonds are offering very low
returns. By offering bank replacement from bank
lending,” he went on to say. capital, pension funds and insurance
From a fund management company at
companies can get higher returns, and
often for similar or lower levels of risk
replacement
the marcus evans European
Pensions & Investments Summit
than by investing in the public bond
market.
capital in
2013, in Montreux, Switzerland, 22 - 24
April, Pilcher uncovers investment Take real estate finance for example. an era where
opportunities in the bank replacement
capital space.
The M&G fund does not invest in the
property itself but lends to investors government and
that do. If the value of the properly
Why are banks withdrawing from
certain lending activities?
goes up or down by 10 per cent, it does
not make a difference to us as lenders,
corporate bonds
There are a number of reasons why
as the fund still earns 10 - 14 per cent
per annum. For a fixed income investor,
are offering very
banks are withdrawing or reducing their
lending activities. The most obvious one
that is better than investing in real
estate equity, and for less risk than the low returns
is that there are fewer banks today than owner of the building.
there used to be – some have failed,
others have retreated to their domestic What risks and returns can they
markets and many more are counting expect?
the cost of too many loans made at too
cheap a rate. Linked to that, many of Another good example is in the
them have been overexposed to certain leveraged finance market. Here, the
lending areas, commercial mortgage loans are safer than high yield, which is

2. About the European Pensions & Investments Summit 2013
The Investment Network –
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returns in recalibrating markets and rethinking pension products to deliver
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About M&G Investments
M&G Investments has been managing money on behalf of individual and institutional clients since 1931. With total assets under
management of £217 billion, M&G is a leading international fund management business with operations in 15 countries and
employing more than 1,500 people. From its headquarters in London, the company offers active investment strategies across the
principal asset classes of equities, fixed income and real estate. (AUM as at 30 September 2012).
www.mandg.co.uk
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