During significant market inflection points, we all struggle to define the ground swell of events converging to change the status quo. Some call it a paradigm shift or a new normal, but the result is the same: investment views and the evaluation of global capital markets have changed once again.

While this paradigm shift has been occurring in the fixed income markets over the course of the past several years, it has recently accelerated in the aftermath of the credit crisis. Although the U.S. debt market remains the largest, most liquid debt market in the world, it is at risk for becoming less dominant in the context of the total global debt markets (both emerging and developed). But, not only have global debt markets changed, so too have fixed income investors. Factors such as pension liabilities, cash flows, liquidity, diversification and alternative sources of return generation are driving new asset allocation modeling. As the landscape of fixed income investing has changed, re-examining the deployment of fixed income allocations is essential in ensuring investors keep pace with the changing paradigm. We believe that benchmark constrained portfolios are faced with several challenges that may be mitigated by allowing a manager the flexibility to invest freely across the fixed income markets:

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