Invesco European ESG Senior Loan Strategy

The strategy aims to provide a high level of current income, consistent with the preservation of capital, by investing primarily in adjustable-rate senior loans whose interest rates float at a spread above Libor and reset on average approximately every 60 days while integrating environmental, social and governance (“ESG”) criteria.

Relatively high yield and senior secured risk

As senior loans are debt obligations of below investment grade issuers, they typically pay a high level of current income. Additionally, they sit at the top of the capital structure, resulting in higher recovery rates in the case of default. 

Floating rate feature

Senior loans’ coupons float above a reference rate. As a result the asset class has an effective duration of just 0.25 years. The ability for coupons to adjust with interest rate movements can help reduce a fixed income portfolio’s duration risk.

Strong diversification properties 

Historically, senior secured loans have had low correlation with traditional asset classes. This means loans can provide diversification benefits when incorporated as a strategic long-term allocation in a diversified portfolio. 

Proprietary ESG ratings process

Invesco developed a proprietary, award winning, ESG rating framework to evaluate the ESG risk of a borrower and has incorporated these ESG ratings into the portfolio construction process. Our credit analysts are leaders in understanding the implications of ESG issues across the investable universe, which enables them in making more impactful investment decisions.

Invesco’s senior loan investment process is based on a disciplined, fundamental approach to investing. Our analysts are structured by industry specialization and have a deep understanding of the companies that operate in the senior loan space.

The process is based in fundamental, bottom-up credit research resulting in two internal ratings:

• Probability of default rating: grading of issuers with respect to the risk of default.
• Expected recovery rating: grading of issuers with respect to the expected recovery rates in the event of default. In addition to credit selection, the process is based on active portfolio management and is designed to optimize portfolio returns while minimizing downside credit risk investing through a full credit cycle.

Concurrent with the fundamental analysis, each issuer undergoes a rigorous, multifaced ESG screening and evaluation process based on 16 different ESG factors. This process ultimately culminates in an ESG rating which is incorporated into the portfolio construction process. 

Depth and breadth of resources

• $32.9 billion* bank loan assets under management globally
• One of the largest institutional and retail managers of bank loans
• Exclusive focus of 32 seasoned investment professionals, 91 professionals in total
• Investment Committee with average 29 years’ experience
• Global platform with US and European bank loan expertise

Market presence and scale

• Invesco has significant presence in all aspects of the bank loan market – Institutional, Retail, Exchange Traded Funds (ETFs), and Collateralized Loan Obligation (CLO)
• Invesco has been managing bank loans for 30 years
• Scale enables Invesco to obtain preferred allocations on new issues
• Invesco is a top trading counterparty allowing for better execution inside market averages

Proven credit process and proprietary tools

• Disciplined, fundamental research focus designed to measure risk and identify relative value across the universe of issues
• Invesco’s customized proprietary tool suite, including Rock Bottom Spread (RBS), support a quantitative analytical framework and predictive credit research in bank loans

ESG analysis

• We have developed a proprietary, award winning ESG rating framework and independently rate companies from an ESG perspective 
• Our credit analysts are leaders in understanding the implications of ESG issues across the investable universe

Private side investor

• Access to management and internal financial information and projections, aiding investment decisions through full credit cycle
• Frequently offered an early look at new loan transactions as the arrangers seek feedback on pricing and terms
• Afforded one-on-one discussions with management teams

Invesco’s Senior Secured Management team has gained a distinctive perspective having managed loan assets since 1989 under a consistent approach executed through a variety of vehicles and strategies over multiple market cycles.

Experts in the loan asset class, the team has 91 dedicated and experienced members with 32 investment professionals averaging 18 years’ experience.

The investment team is led by a five-person Investment Committee, which has an average of more than 29 years’ industry experience and an average of 19 years at Invesco.