GLOBAL – The International Monetary Fund is to set up a $8.7bn (€6.8bn) investment account – putting at least some of the assets with external bond managers.

The idea is for the fund to earn additional income, according to a senior IMF official.

The fund’s retained earnings will be ploughed into the account, which was approved by the IMF Executive Board at the end of April.

“We will place this on the bond markets over a period of several months,” said the official during a telephone conference.

“It is an amount that is clearly not insignificant for any institution, but in terms of the overall bond market, it is relatively minor.”

According to the IMF, it can invest in government bonds as well as the obligations of international financial institutions, primarily the Bank for International Settlements (BIS).

“We have effectively farmed out the investment management to our trust partners, mainly the World Bank, BIS, and two private investment managers who make the precise decision in what investments to invest according to a benchmark, which is a one-, two-, three-year duration,” said the official.

The names of the external managers – and the size of the mandates – were not disclosed.

Each manager will be benchmarked against the 1–3 year government bond index “to guide its investment strategy and serve as a measure of performance” – the IMF said in a note on the account.

It added: “Managers will be given some latitude to deviate from the duration of the benchmark index as a means of adding value over and above the return of the index.”

“This is a major development and it will enable us to have a more effective investment of the Fund’s reserves, its retained earnings, and, therefore, also allow a diversification of our sources of income,” the official said.

The move comes at a time when a historically low level of credit is outstanding – something the IMF has not seen since the 1980s.

According to the official, while the Investment Account will make a “significant contribution”, it would not of itself solve the overall income issue in a low credit environment.

The IMF noted that the use of external bond managers has increased in organisations like the IMF.

“External managers have been engaged primarily as central banks have expanded into new asset classes in which they lack investment experience. In some cases, outsourcing has been used to transfer technical capacity or to compete against internal managers.”

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