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Mariner Investment Group, LLC.

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(C) Implementation: Integration

FI 10. Integration overview

10.1. Describe your approach to integrating ESG into traditional financial analysis.

Mariner's approach is one of inclusion. That is, the Firm views ESG information and related risk identification to be additive to the investment process, and, as such, does not expect performance to be impeded but, in fact, to be enhanced as a result of the ESG influence. The implementation and integration of ESG analysis does not replace fundamental or technical analysis, but instead may be performed in conjunction with traditional evaluation in order to more fully develop the decision making process.

The Firm utilizes a variety of sources to analyze and assess its portfolios with regards to ESG information, with the foremost among them being MSCI ESG Ratings. MSCI ESG Ratings and Research are produced 100% by MSCI’s in-house team, which encompasses over 200 dedicated research analysts and covers over 7,500 companies.  The factors analyzed by MSCI for ESG impact include, but are not limited to: Climate Change, Natural Resources: Scarcity and Degradation, Labor and Human Capital, Product Safety, Corporate Governance and Government Policy.  Additionally, Mariner uses Bloomberg’s ESG Analytics, Sustainalytics, Fitch Ratings, Beyond Ratings and SASB Materiality Map to increase the breadth of ESG information coverage available to the Firm.

10.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

SSA

Within our SSA exposure, we primarily have G-4 sovereign debt positions. These countries and economies have strong scores from an ESG perspective. The applicable teams review MSCI and other ESG research for any changes semi-annually or more frequently when changes occur. Mariner's ESG Officer has worked with investment teams to incorporate ESG guidelines, where applicable, to the fund/strategy's investment guidelines. Specifically, we have added an internal investment guideline for covered client accounts (e.g., those accounts with a SSA investment allocation/mandate), where the portfolio manager will not buy or sell any government security rated below BBB by MSCI without first consulting with the Firm's Co-Chief Investment Officers or their representative (e.g., the ESG Officer in her capacity as such and/or a member of the office of the Co-Chief Investment Officer).

Furthermore, we also participated in the world's first AAA-rated sovereign green bond sale from the Netherlands as we believed there would be strong investor appetite which could potentially increase the value of the holding. 

Corporate (non-financial)

As it relates to our CLO team, our portfolio managers have annual training on ESG integration in their investment process. Before pricing a new CLO, Mariner's ESG Officer will request a list of loans as far in advance of the closing of the CLO as possible. Upon request, the team will use best efforts to provide a list of the proposed loans for the new CLO to Mariner's ESG Officer. Mariner's ESG Officer will load the portfolio into MSCI's ESG Manager, a website to capture ESG rating and score, where available. Mariner's ESG Officer will send the portfolio back to the team with a summary of available ESG ratings and scores with details highlighting MSCI ESG research reports for loans which are underperformers from an ESG perspective. On a quarterly basis thereafter, Mariner's ESG Officer will re-run all the loans in the portfolio through MSCI's ESG Manager and send the portfolio back to the team with a summary of available ESG ratings and scores. Mariner's ESG Officer will highlight and provide detailed MSCI ESG research reports for loans which are under-performers from an ESG perspective. Lastly, Mariner's ESG Officer will set up alerts in MSCI ESG Manager to notify the team of any changes in the ratings of any loans in the portfolio.

As it relates to our Credit Arbitrage strategy, our portfolio managers have annual training on ESG integration in their investment process. Prior to initiating a new position, the portfolio managers review MSCI ESG Analytics score and company reports, where available, as part of their fundamental analysis. The team utilizes SASB Materiality Map to increase the breadth of ESG information coverage and this combined integration approach assesses compensated versus uncompensated risks. On a quarterly basis thereafter, Mariner's ESG Officer runs all the positions in the portfolio through MSCI ESG Analytics, sending the results to the portfolio managers highlighting and providing detailed MSCI ESG research reports for positions which are under-performers from an ESG perspective. In addition, Mariner's ESG Officer sets up alerts in MSCI ESG Manager to be aware of any changes in the ratings of any positions in the credit portfolio. 

Securitised

Where available and applicable, the applicable team reviews information from MSCI ESG Research and incorporates it into fundamental research.  However, as previously stated, some securities and strategies do not lend themselves to ESG investment integration, for instance we trade both agency and non-agency mortgage products.  Our mortgage team  often makes investment decisions that fit within the spirit of the ESG construct.  Specifically the following:

Agency Mortgages

Fannie Mae / Freddie Mac:

  • HomeReady / Home Possible programs provide mortgage financing to low- and moderate-income families who are unable to make a substantial down payment
  • HARP (Home Affordable Refinance Program) extended loans to stressed borrowers aimed at keeping them in their homes by refinancing into lower rate mortgage

Ginnie Mae: Galton’s Agency MBS portfolio primarily consists of loans financed via Ginnie Mae programs, which serve individuals who are generally unable to qualify for conventional loans:

  • Federal Housing Administration (“FHA”) supports loans to low- and moderate income borrowers and first-time homebuyers
  • Veteran Affairs Home Loan Program
  • Project loan IO programs support the building of assisted living and multi-family housing
  • Home Equity Conversion Mortgages (HECM) are extended to seniors to facilitate the monetization of their home equity
  • Public and Indian Housing programs support the extension of loans to American Indian tribal communities that traditionally have limited access to capital
  • Rural Housing Service programs support the extension of loans to finance housing and essential community facilities in rural areas

Non-Agency & Agency Mortgages

Many of the team’s RMBS holdings support the extension of mortgage credit to borrowers:

  • Agency MBS: help make housing more affordable and available to borrowers who may otherwise have difficulty with obtaining a mortgage loan
  • Non-Agency 2.0: offers mortgage finance products to those who do not qualify for Agency loans
  • Re-Performing Loans: modified loans with lower payments to help borrowers remain in their homes

Credit Risk Transfer (“CRT”)

  • Agency CRT: risk-sharing transactions that bring private capital to the US housing market, therefore improving market liquidity and mortgage availability
  • Private Mortgage Insurance CRT: creates liquidity for Mortgage Insurance companies to extend insurance to homeowners who cannot make a substantial down payment

10.3. Additional information [OPTIONAL]


FI 11. Integration - ESG information in investment processes

11.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
SSA
Corporate (non-financial)
Securitised
ESG analysis is integrated into fundamental analysis
ESG analysis is used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer`s ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify in Additional Information

11.2. Additional information [OPTIONAL]

Fixed Income Securitised Other - With regards to Securitised products (e.g., mortgage backed securities) that don't lend themselves to traditional ESG integration, we seek to invest with an ESG "spirit" by, for example, focusing heavily on governance or the value chain. More specifically, some of our positions in the securitized space support government programs and initiatives as well as understand the value chain associated with the particular security. For example, attempting to identify 'bad actors' or originator behaviour such as a history of predatory lending practices.


FI 12. Integration - E,S and G issues reviewed

12.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
SSA

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

Securitised

Environmental

Social

Governance

12.2. Please provide more detail on how you review E, S and/or G factors in your integration process.

SSA

Within our SSA exposure, we primarily have positions within the G-4 economies. As such, these countries have strong ESG scores, and therefore we believe our investments reflect positively when ESG is integrated into the investment process. Country specific indicators may include, but are not limited to: energy consumption, renewable energy, fossil fuel and nuclear fuel reserves, income inequality, life expectancy, public debt and political governance/corruption. Mariner's ESG Officer has worked with investment teams to incorporate ESG guidelines, where applicable, to the fund/strategy's investment guidelines. Specifically, we have added an internal investment guideline for covered client accounts (e.g., those accounts with a SSA investment allocation/mandate), where the portfolio manager will not buy or sell any government security rated below BBB by MSCI without first consulting with the Firm's Co-Chief Investment Officers or their representative (e.g., the ESG Officer in her capacity as such and/or a member of the office of the Co-Chief Investment Officers).

Furthermore, we also participated in the world's first AAA-rated sovereign green bond sale from the Netherlands as we believed there would be strong investor appetite which could potentially increase the value of the holding. 

Corporate (non-financial)

Within our corporate exposure, we include ESG information within our fundamental and/or technical analysis. Numeric scores are viewed from Bloomberg and/or MSCI's ESG research and added to other statistics within our analysis. Additionally, qualitative research from MSCI is included in write-ups for specific corporates where available and applicable. Some indicators may include but are not limited to: human capital development, controversial sourcing, water stress and corporate governance.

As it relates to our CLO team, our portfolio managers have annual training on ESG integration in their investment process. Before pricing a new CLO, Mariner's ESG Officer will request a list of loans as far in advance of the closing of the CLO as possible. Upon request, the team will use best efforts to provide a list of the proposed loans for the new CLO to Mariner's ESG Officer. Mariner's ESG Officer will load the portfolio into MSCI's ESG Manager, a website to capture ESG rating and score, where available. Mariner's ESG Officer will send the portfolio back to the team with a summary of available ESG ratings and scores with details highlighting MSCI ESG research reports for loans which are underperformers from an ESG perspective. On a quarterly basis thereafter, Mariner's ESG Officer will re-run all the loans in the portfolio through MSCI's ESG Manager and send the portfolio back to the team with a summary of available ESG ratings and scores. Mariner's ESG Officer will highlight and provide detailed MSCI ESG research reports for loans which are under-performers from an ESG perspective. Lastly, Mariner's ESG Officer will set up alerts in MSCI ESG Manager to notify the team of any changes in the ratings of any loans in the portfolio.

As it relates to our Credit Arbitrage strategy, our portfolio managers have annual training on ESG integration in their investment process. Prior to initiating a new position, the portfolio managers review MSCI ESG Analytics score and company reports, where available, as part of their fundamental analysis. The team utilizes SASB Materiality Map to increase the breadth of ESG information coverage and this combined integration approach assesses compensated versus uncompensated risks. On a quarterly basis thereafter, Mariner's ESG Officer runs all the positions in the portfolio through MSCI ESG Analytics, sending the results to the portfolio managers highlighting and providing detailed MSCI ESG research reports for positions which are under-performers from an ESG perspective. In addition, Mariner's ESG Officer sets up alerts in MSCI ESG Manager to be aware of any changes in the ratings of any positions in the credit portfolio.

Securitised

Further, as it relates to securitized products, MSCI's ESG Research and Bloomberg's ESG data does not generally provide a score. In those instances, we seek to invest with an ESG "spirit" by, for example, focusing heavily on governance or the value chain. More specifically, some of our positions in the securitized space support government programs and initiatives as well as understand the value chain associated with the particular security. For example, attempting to identify 'bad actors' or originator behaviour such as a history of predatory lending practices.

Where available and applicable, the team reviews information from MSCI ESG Research and incorporates it into fundamental research.  However, as previously stated, some securities and strategies do not lend themselves to ESG investment integration, for instance we trade both agency and non-agency mortgage products.  Our mortgage team often makes investment decisions that fit within the spirit of the ESG construct.  Specifically the following:

Agency Mortgages

Fannie Mae / Freddie Mac:

  • HomeReady / Home Possible programs provide mortgage financing to low- and moderate-income families who are unable to make a substantial down payment
  • HARP (Home Affordable Refinance Program) extended loans to stressed borrowers aimed at keeping them in their homes by refinancing into lower rate mortgage

Ginnie Mae: Galton’s Agency MBS portfolio primarily consists of loans financed via Ginnie Mae programs, which serve individuals who are generally unable to qualify for conventional loans:

  • Federal Housing Administration (“FHA”) supports loans to low- and moderate income borrowers and first-time homebuyers
  • Veteran Affairs Home Loan Program
  • Project loan IO programs support the building of assisted living and multi-family housing
  • Home Equity Conversion Mortgages (HECM) are extended to seniors to facilitate the monetization of their home equity
  • Public and Indian Housing programs support the extension of loans to American Indian tribal communities that traditionally have limited access to capital
  • Rural Housing Service programs support the extension of loans to finance housing and essential community facilities in rural areas

Non-Agency & Agency Mortgages

Many of the team’s RMBS holdings support the extension of mortgage credit to borrowers:

  • Agency MBS: help make housing more affordable and available to borrowers who may otherwise have difficulty with obtaining a mortgage loan
  • Non-Agency 2.0: offers mortgage finance products to those who do not qualify for Agency loans
  • Re-Performing Loans: modified loans with lower payments to help borrowers remain in their homes

Credit Risk Transfer (“CRT”)

  • Agency CRT: risk-sharing transactions that bring private capital to the US housing market, therefore improving market liquidity and mortgage availability
  • Private Mortgage Insurance CRT: creates liquidity for Mortgage Insurance companies to extend insurance to homeowners who cannot make a substantial down payment

12.3. Additional information.[OPTIONAL]


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