OREANDA-NEWS. Fitch Ratings has affirmed Tikehau Credit Plus's (TC+) and Tikehau Taux Variable's (TTV) 'Strong' Fund Quality Ratings. The funds are managed by Tikehau Investment Management (Tikehau IM).

The affirmation primarily reflects the disciplined implementation of the flexible investment approach of the two funds. It also reflects the continued expansion of resources dedicated to the credit platform, in line with the substantial growth of the company's assets under management (AUM) over the past 12 months. The two funds continue to show robust long- term performance relative to peers and objectives.

KEY RATING DRIVERS
Funds Presentation
TC+ and TTV are French Fonds Commun de Placement (FCP) with EUR513m and EUR746m of assets at end-March 2016, respectively. TC+ is a flexible credit fund primarily invested in eurozone high-yield (HY) bonds (typically 70%), with a performance target of close to the average high-yield market yield over the medium term with low volatility. TTV is a short-duration credit fund primarily invested in eurozone investment-grade (IG) bonds and notes. It seeks to outperform the three-month Euribor + 200bp (gross of fees), with volatility typically ranging between 1% and 3%.

Investment Process
The investment approach of both funds combines bottom-up credit selection and dynamic tactical allocation. Active management of interest rate duration and market exposure is achieved through flexible allocations to credit sub-asset classes and cash, as well as derivative strategies.

Proprietary credit research is comprehensive, covering fundamental, relative value and liquidity factors. Coverage focuses on under-researched, more complex credits to optimise internal analytical resources.

Portfolio construction is not benchmark-constrained but must adhere to targets of risk budgets, market positioning and asset allocation, defined during weekly top-down meetings. Portfolio construction and monitoring is supported by advanced third-party and proprietary risk analytics.

Resources
The funds' seasoned portfolio manager (PM), part of a team of five PMs, is supported by a growing team of nine analysts. As the business innovates, grows in size and complexity, external hires made over the past three years have enhanced the experience and depth of the investment teams.

The funds also benefit from Tikehau IM's and Tikehau Group's resources in operations and controls. Sophis Value and Bloomberg offer full coverage of portfolio monitoring, order management, analytics and compliance checks.

Track Record
TC+ performance has been above its (gross of fees) return objective of Euribor + 300bps over five and three years, but not over one year, to March 2016. Volatility has been consistent with the fund's target, 2% lower than the BofA Merrill Lynch Euro High Yield Index. The fund has a defensive profile, compared with the Lipper euro high yield category, showing smoother returns and better drawdowns.

TTV's performance has been above its (gross of fees) return objective of Euribor +200bps and has outperformed peers in the euro short-term fund category, over three and five years, but not over one year, to March 2016. Historically, the fund's volatility has been below 2%, in line with objectives.

Asset Manager
Established in 2006, Tikehau IM is a France-domiciled asset manager focusing on eurozone fixed income. It is part of the Tikehau group (EUR7.4bn AUM at end-2015), created in 2004 and owned by six partners and three financial institutions. At end-2015 Tikehau IM employed 65 staff and managed EUR5.2bn of assets (44% growth yoy).

RATING SENSITIVITIES
The ratings may be sensitive to material changes in the investment or operational processes, or in resources dedicated to the funds. A material adverse deviation from Fitch's guidelines for any key rating drivers could result in a downgrade. For example, this may be manifested in significant structural deterioration in the funds' performance, excessive risk deviation from objectives, material reduction in research staff or the departure of the head of credit.

Fitch sees little potential for an upgrade, given the specific nature of the funds and already high ratings.