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Monday, 16 March 2015 00:11 - - {{hitsCtrl.values.hits}}
With a wealth of experience in corporate investments, dealing and treasury operations, Gihan Hemachandra is one of Sri Lanka’s leading financial professionals. His qualifications include a Bachelor’s degree in Business Administration with an Honours in Finance from the University of Colombo.
He is also an Associate Member of the Chartered Institute of Management Accountants UK. His substantial experience ranges from Government securities and other fixed income securities markets in Sri Lanka to wealth management, business strategy and investment banking.
Hemachandra has been at Capital Alliance since 2005 and initially joined the company as the Head of Treasury; he was later promoted to Chief Executive Officer in 2012. Hemachandra has over 16 years of experience in the field of financial services and has helped Capital Alliance achieve higher capital gains and momentous growth. He leads a dynamic team of 10 professionals who handle the company’s rapidly expanding portfolio.
Describing how fixed income securities work, Hemachandra stated, “Fixed income securities are investments that provide a return in the form of fixed periodic payments and promise the return of capital invested on a predetermined maturity date. Fixed income instruments can generally be classified as those issued by the Government of Sri Lanka (generally known to be risk-free instruments and termed ‘gilt-edged securities’) and those issued by companies (commonly known as credits or corporate debt). Fixed income instruments differ from deposits because they are tradable by nature, and provide investors with an early exit opportunity if it is ever required.”
Explaining why investors should make fixed income investments, Hemachandra further stated, “Fixed income instruments provide stability, arising from fixed interest yields throughout the investment period. A variety of options within the asset class (e.g. Government treasury bonds, corporate bonds etc) and maturities (tenors ranging from one day to 30 years) further serve to add to the stability proposition. Fixed income instruments also provide an excellent counterbalance to equities in a multi-asset portfolio as returns from these instruments are less volatile. The correlation between the two asset classes measured over a long period of time has also been found to be limited.”
However, Hemachandra advised that the less known but more profitable method of investing in fixed income is through leveraged trading. In summary, an investor can use the fixed income instrument they have invested in as collateral to borrow against and re-invest in more of the same or similar instruments. The immediate additional return from leveraged trading arises out of carrying a tenor mismatch.
He further added, “With the expertise of CAL’s fixed income advisors, investors can also determine the appropriate timing of entry and exit for the strategy, thereby netting substantial capital gains. By following this hybrid structure of investment, it is possible to convert a traditional low yielding (single digit) Treasury bond to a return that comfortably exceeds 15 to 20 %. Leveraged trading of course carries downside risks as well, which is why acting with the insights of an advisor is recommended.”
CAL offers fixed income investments through a variety of instruments including the trading of treasury bills and bonds, repurchase and reverse repurchase agreements, leverage trading on Government securities, listed and un-listed debentures, commercial papers, securitisations and interest rate swaps and forwarding rate agreements.
Highlighting what clients should consider when making fixed income investments, Hemachandra stated, “The client can get a first-hand experience of how this asset-class works by investing in its simplest form, known as repos (repurchase agreements). This initial learning can provide comfort and pave the way for the more sophisticated products offered by CAL. When investing in the more sophisticated products, the client should have a medium to long term appetite with a broad investment outlook. He or she should be able to understand the relationship between yield and the price of fixed income products, as this is vital in making an informed decision in the course of active fixed income trading.
Clients should also be able to understand the risk of interest rate volatility should the need arise to exit an investment. An understanding of macro-economic fundamentals of the economy such as inflation, national income, consumption, savings, international trade and finance would also be an advantage. An understanding of the credit risk of the issuer is also necessary in the case of corporate debt whilst an understanding of the magnification risk inherent in leveraged trading is essential prior to engaging in this more high risk strategy. CAL’s advisors are well informed and are therefore capable of educating and advising clients on all the above key areas.”
Commenting on the multiple avenues of income arising from fixed income trading Hemachandra stated, “Clients make money initially through the interest which is accrued over time on their investments. Thereafter, capital gains can be earned from an overall fall in market yields and/or contraction in credit spreads. Maintaining maturity mismatches on fixed income portfolios also results in a high net interest income due to the interest rate differential generally existent between shorter term borrowings and longer term investments.”
Capital Alliance (CAL) is continuously striving to become the preferred partner in financial markets. Having commenced operations in October 2000, CAL has established itself as a leading player in the financial markets of Sri Lanka.
The company specialises in the origination, trading and investment of debt and equity securities and this mix of expertise and services allows CAL to offer integrated and customised solutions to its customers across the entire financial spectrum. The company strives to build lasting relationships with all of its clients, in order to acquire an in-depth understanding of their needs and goals.
In a short period of time, CAL has built a reputation for itself as a market leader, by consistently delivering excellence in execution, world-class research and product innovation.
