40th Anniversary Podcast, a reflection on the legacy of FAX

In this special episode, Adam McCabe—Head of Fixed Income, Asia Pacific and Portfolio Manager for FAX—reflects on the fund’s rich history and enduring relevance. 

Transcript

Mike Taggart: Welcome to the latest podcast for the Aberdeen Asia-Pacific Income Fund, ticker symbol FAX. I'm Mike Taggart, Aberdeen's Head of Closed-End Fund Investor Relations. With me is Adam McCabe, Portfolio Manager for FAX and Aberdeen's Head of Asia-Pacific Fixed Income team. Adam, thank you for joining us today.

Adam McCabe: Thanks, Mike. Lovely to be here.

Mike Taggart: So, Adam, it's an exciting year. FAX is reaching its 40th anniversary of its IPO here in 2026. That's a pretty remarkable milestone. Neither of us was here when it launched, but I'm wondering if you can help us understand the market conditions in the mid-1980s that shaped FAX's creation.

Adam McCabe:  Well, that's a good story that I should tell, Mike. FAX, the Aberdeen Asia-Pacific Income Fund, has reached 40 years since it was first launched. And while I was not around 40 years ago, I can share a few insights as to what was going on back in Australia back then. 

The team that launched the fund really capitalized on a theme that I think is true and important today. And that is that investors around the world, in particular in the US, are seeking income. And back in 1986, when this fund was launched, the Australian bond market was yielding something like 12, 14% in terms of yields. A great income opportunity. 

But the narrative at the time around the launch was actually very, very interesting. And I happened to catch up yesterday with a former colleague of mine that was working in the government administration at the time. And he reminded me that the Treasurer of Australia, Paul Keating, who then later became the Australian Prime Minister, was worried about the Australian economy and the Australian people living beyond their means. The Australian economy was largely A commodity-dependent economy. They just floated their currency, so it was a floating exchange rate. But they were suffering from a declining terms of trade, a widening current account deficit. 

And around the time of the launch of the fund, the treasurer of Australia said that if economic reform was not undertaken, then Australia would risk becoming a banana republic. And that created this storm among the policy and political environment within Australia that created the opportunity for a regime change, for policy to be changed and there to be reforms being made on the economic front. 

The reason I mentioned that was that my forefathers, the guys that were managing the FAX portfolio prior to me, were aware to this risk, aware to the opportunity, and they launched the fund. They saw that the American investor was looking for a yield, and as all investors today are looking for yield, but yet also were able to identify that Australia had this opportunity for structural reform. And that reform would deliver a step-wise change in the opportunity set and the way bond markets will deliver returns for investors. 

My forefathers, the guys that launched FAX, Brian Sherman and Lawrence Freeman, they were capturing the opportunity that A reform-minded government would bring both a current yield, which was high, 10, 12%, but also the opportunity for regime change and economic reform that would deliver a capital gain opportunity as time progressed.

Mike Taggart: And then my understanding is that, after the IPO, they had to convert the US dollar to Australian dollars. And at the time, it was the largest conversion into Australian dollars.

Adam McCabe: Yeah. So, let me give you, let me give like around the time of the launch of the fund, the treasurer of Australia called, he made a, he made a statement. He said that unless the country is prepared to make the necessary economic adjustments. If no action is taken, you are gone. You're a banana republic. This is what the treasurer of Australia said at that time. Now, that was around the time the fund was launched. And so the currency was floating, the terms of trade were falling, commodity prices were falling, terms of trade were falling, the currencies started to decline. And he got the treasurer saying this. created an opportunity for US investors to buy Aussie dollar bonds at a 12% handle and benefit from a cheaper currency than had prevailed previously. In terms of the question that you asked, I was looking today at the records and in 1983, the fund management industry in Australia amount, the size of the fund management industry in Australia was around $4.75 billion in size. That was the asset management industry, the size of it. FAX brought back to Australia $1 billion in one day. So it was a, it was.

Mike Taggart: Right, it's like 25% of the industry roughly. 

Adam McCabe:  These guys were able to, yeah, these guys had a massive impact on the market and the rest is history.

Mike Taggart: And then in 2000, Aberdeen purchased this fund and a couple of others from Equity Link. And the investment strategy changed to not be focused on Australia. Why was that? What market conditions prevailed then?

Adam McCabe:  To be fair, for FAX, for the Aberdeen Asia-Pacific Income Fund, the strategy was approved to change and to be broadened into Asia in 1998, before Aberdeen had responsibility. The rationale at the time was that Asian yields, sorry, Australian yields had declined and there was a greater opportunity to deliver the income that the clients were promised and the clients were seeking through investments outside of Australia. Aberdeen, when they took responsibility for the funds in the early 2000s, continued and reinforced that the investment in that opportunity. So Australia was the key part of the investment process and key part of the investment universe for the first 15 years or so, 14, 15 years of the fund, and then thereafter, As yield opportunities moved from Australia to the rest of the world, particularly in Asia, the management company decided to diversify. And that's an important consideration. Diversification in the pursuit of yield is actually very important. If we put all our eggs in one basket, then we are subject to a great deal more volatility than we are if we are diversified across markets and segments across Asia.

Mike Taggart: Right, it's interesting that it pivoted based on better yields elsewhere, and it had to change its investment objective. So in the past 40 years, roughly, FAX has navigated everything from yield changes, inflation shocks to global recessions. Which market period most tested the fund's resilience, and how did the team respond?

Adam McCabe: I'd like to think I had 40 years experience managing the fund, but I don't. If I'm honest, I don't know.

Mike Taggart: You weren't here the whole time.

Adam McCabe:  I've been managing the fund for the better part of 17 years rather than the 40. But if I speak personally, I think the most difficult period for me was during the period of COVID. There was a period in March 2020 where there was this great uncertainty around what would happen tomorrow. And no one knew what would happen. And liquidity was challenged across all markets. I think for me, managing this portfolio, that would have been the most difficult period. 

The benefit, and now reflecting upon that, I think we benefited from a couple of things. One is that It is a closed-end fund, so our investors have a long-term horizon. Granted, we do use leverage, and that does require us to manage liquidity. But even in the process of managing that liquidity, we were invested and are invested in very liquid markets across the Asia-Pacific region, whether that's Australia, in South Korea, in Singapore, in Thailand, our fund is invested in very liquid markets. And even when it came time to pay down leverage, we were able to meet those liquidity requirements very easily. And that for me, I think, leaves a lasting memory and one that is important for closed-end fund investors. One, we are there for the long term. Two, that there are opportunities to seek yield, but three, in seeking yield, it's best to be diversified and indeed enjoy the benefit of that diversity across markets, sectors, countries, and the like. 

So I think this portfolio is very well positioned for the long term. I think that the longer term investors, when they first started looking at this portfolio, this was the first Australia Prime portfolio, and it was an Australian dollar income portfolio. It still to this day is a non-US dollar play. Most of the exposure in the portfolio is not US dollars. It's Australian dollars, Asian currencies. And so it could be an anti-dollar trade.

Mike Taggart:  Yeah, and a lot of people understand that. And a lot of advisors have been investing in this thing for decades, off and on, specifically based on their outlook for the US dollar. So you mentioned you've been looking over the portfolio for 17 years. If you could go back in the time machine, in the TARDIS, to give advice to the investment team in 1986, what would you say?

Adam McCabe: Oh, Mike, I wouldn't. I wouldn't give advice. I think I would applaud them for their foresight.

And the reason for that is that what they identified back in 1986 was that investors have a need for income. And this is what they provided for them. Australian At the time, the Australian market was a high-yielding market. US investors could not gain exposure to the Australian market. This provided them with the exposure. 

This has given many, many US investors with an opportunity to generate long-term income, a diversified source of income, and it's delivered time and time again over 40 years.

Mike Taggart: So you've been managing the fund for 17 years, roughly. Do you have a favorite story or memory from your time managing FAX?

Adam McCabe: In terms of my reflection on managing the fund, I don't have a particular story. 

I think that I've been very fortunate to interact with many people across the Aberdeen spectrum, those that have influenced both our team, the portfolio management team that contributes to the delivery of performance for the fund. 

But I'm also reminded of those that contributed to the formation of the fund. And there are many of those, the chairman that have come and contributed to the challenge in the past, but also those that shaped the portfolio in 1986. And I think those that did had foresight. They identified early on that investors do require income, and there's a role for income in everyone's portfolio. And they were able and willing to deliver a solution that offered investors that opportunity. 

And I think that's something that even today, many of our colleagues still look to deliver to our clients. The delivery of income is something that all investors are looking for. And these guys who set the fund up were definitely ahead of their game.

Mike Taggart: Well, thank you, Adam, for that walkthrough of FAX's history. And, you know, it sounds from your comments, you know, that you understand the heritage that you've been carrying on for 17 years. 

Appreciate the update. 

There are three convenient ways to learn more about FAX. Visit its website, abrdnfax.com. Second, you can e-mail us at investor.relations@abberdeenplc.com or give us a call at 1-800-522-5465. I'm Mike Taggart of Aberdeen. 

Thank you for listening.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for informational purposes only and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments or products mentioned herein, and does not constitute investment research.

The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen. The companies discussed in this podcast have been selected for illustrative purposes only, or to demonstrate our investment management style and not as an investment recommendation or indication of their future performance.

 The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates, and provide no guarantee of future results.