Dan Culloton: The fund also has a larger-than-average percentage of its assets in corporate bonds that are rated BBB or below, sort of on the borderline of investment grade and below investment grade.
How does your fund and your firm square having such a large stake in these lower-rated bonds when you're also striving for preservation of capital and smooth returns?
Tom Dugan: Well, it starts really in those securities, as with all securities, with research. We look at a company, and we're very open-minded about it. We don't come in with an assessment that's based on their rating. We effectively do our own completely independent, very in-depth assessment of the creditworthiness of every company whose bonds we purchase in the fund. And our assessment can be markedly different than that of the rating agencies, and a company or issuer that the rating agencies think should be a BB rated company, we may have a much higher opinion of because of the work we've done.
So, in that sense we are not lending to companies or entities that we're not very confident are in a position to pay back the debt service on their loans and the principal on their loans, so that is a hurdle that has to be cleared: Are we confident that this entity is going to be in a position to pay back the debt? And so that's where the conversation starts, and so if we can't reach that point, then the attractiveness of the price becomes kind of a moot point.
To the extent that we have confidence in the issuer and our ability to get paid back based upon our research, then we can make certain investments, and in many cases those turn out to be some of the more higher-returning investments because there is that aire of uncertainty surrounding a company with a slightly below investment grade rating.