April 2023
 

Insight Investment co-head of US multi-sector fixed income Gautam Khanna explains his route into asset management, the process his team uses and how keeping a cool head enables him to take a sensible approach to risk.

Gautam Khanna

Gautam Khanna is a senior portfolio manager and co-head of US multi-sector fixed income at Insight Investment, leading management of the flagship US core, core plus, select income and high yield strategies. He joined Insight’s fixed income group in 2015 when BNY Mellon acquired Cutwater Asset Management where Khanna had been a managing director and senior portfolio manager since 2003.

 

Describe your background. How did you come to be in asset management?

I grew up in India, and as per the stereotype there are lots of doctors in my family. But I ruled that path out early on when, as a kid, I fainted visiting an operating room.

Thankfully, I discovered the world of finance was a much more natural fit; I was fascinated by economics and the practical application of the social science to our day-to-day lives and how it affects human behavior and the markets we invest in. I studied economics and finance for most of my education, including an MBA from Cornell University. Along the way I also became a Certified Public Accountant (CPA) and became a Chartered Financial Analyst (CFA) charterholder to support my interests in investing.

I started my career writing opinions on company financial statements while at Deloitte & Touche, which proved to  be an excellent training ground in understanding the ins and outs of financial statements and how to identify the skeletons that might be buried. I then worked at Xerox, which in its heyday was a leading company, but suffered from rapid technological disruption and competition while I was there. These experiences gave me a unique perspective on analyzing financial statements, what questions to ask, and what key factors to consider when assessing investments.

Over time I grew to appreciate the interplay of the top-down macro environment with the bottom-up specifics of any potential investment. These building blocks have been key to success in my career ever since.

 How would you characterize your style as a portfolio manager?

I am a value-oriented investor to the core, always looking for mis-pricings and opportunities to capture yield in a smart way on behalf of clients.

Market psychology often plays a part in delivering the best opportunities. Understanding both the markets and your own psychology can be a key to success. I try to be counter-cyclical and often look for reasons to do the opposite of the “herd” as markets are prone to swinging based on the emotional “fear and greed” rollercoaster.

My style of fixed income investing is about striking the right balance between high quality and predictable income generation and diversification from equity volatility.

How would you characterise your style as compared with your peers?

I think growing up in India, an emerging market, and moving to the United States offers a unique perspective. It forced me to develop a global mindset, and I see myself as a global citizen.

It perhaps gives me a different perspective of risk and reward than if I was born and bred in one corner of the world without the global perspective. I think this, alongside my experience, helped develop my instincts for consistently pinpointing risk-adjusted value.

How do you go about assessing potential investment ideas?

Everything starts with the top-down macro backdrop. It narrows down our preferred sectors.

We then populate our allocation with specific issuers and bonds through bottom-up discipline, which is how the rubber meets the road. We draw on the depth and experience of our team of internal credit analysts, rather than rating agencies or outside parties.

At any point in time, we’re either emphasizing defensive segments of the market where it’s about steady income capture or emphasizing more cyclical names where there’s potential for price appreciation.

Describe a typical day on the fixed income desk.

It starts with a morning meeting where we discuss the macro data and any events of note. Over the course of the day meetings typically cover the new issue calendar, portfolio strategy and asset allocation.

Depending on the day, there’s either a macro meeting or more bottom-up meetings where we talk about specific sub sectors and individual issuers. In addition, there’s always informal chat about the latest news flow, whether it’s economic data, valuation changes, news from issuers or earnings reports, so there’s constant dialogue and fine tuning of views on the desk.

What would you say are the strengths of Insight as a fixed income house?

We have extensive resource across all areas of fixed income. We’re not just a macro shop or high yield shop or structured credit shop; we’re all of the above. That allows us to apply genuine diversification.

It is crucial to have multiple sources of uncorrelated return in order to target a stable and dependable outcome. Even if you think you’ve thought about all the factors that will drive markets, the reality is you’re never going to get every decision right, so diversification matters.

What outside of investment expertise do you bring to the team?

I bring an understanding of my own behavioral psychology, meaning I avoid making knee-jerk decisions. I always remind people around me that it’s important not to let the pressure of the moment lead to rash decisions; you have to let it simmer then reassess the situation.

What would you be if you weren’t a portfolio manager?

Lying on a beach! No, my wife says I can never stay still on the beach because I’ve always got something on my mind. I have a creative side and if I had the luxury of doing whatever I wanted then maybe I would be a travel journalist – that would be interesting.

What’s the best piece of advice you’ve ever been given?

Work hard, do your due diligence and don’t let your emotions cloud sensible decision making. Another piece of advice is don’t overcomplicate things. Sometimes there’s an elegance in simplicity. It might sound enticing to say, ‘We put on five different types of option trades’, but at the end of the day, you could look at the profit and loss and think, ‘That was a lot of complexity for very little’. Generally, if something seems intuitive, you probably already have the right answer.

What one thing keeps you awake at night?

As a portfolio manager it is very difficult to shut off. I am responsible for investor money and during periods of heightened uncertainty there are so many variables. Did we factor this or that in? Did we think about that? What if that happens? There are plenty of things to keep me up at night.

What do you most enjoy about your job?

On any given day I am putting myself in ‘someone else’s shoes’ to determine their point of view, whether it’s the Federal Reserve chair, the CEO of a particular entity or the consumer. We are thinking through the various factors these players would be considering before arriving at a conclusion on the direction of interest rates or economy or the markets. Very few professions allow you to do that. It’s also a humbling profession because just when you think, ‘I’ve done this for decades’, up comes something you’ve never encountered before. It certainly keeps life interesting.

What do you enjoy doing outside of the day job? 

I’m a family guy, so outside of work it’s all about family activities. I aim to be a good father to my daughters, and I’ve recently been teaching one of them how to drive. My advice is not always well received but I give it anyway.