September 8, 2014 / 3:05 AM / 5 years ago

Global credit funds seeking to add Asia experts - IFR

HONG KONG, Sept 8 (Reuters) - Asset managers are looking to hire more research analysts in Asia, in a sign that the rapid growth of the region’s bond markets is attracting the attention of global funds, IFR reported on Saturday.

Asia’s leading companies, from Hong Kong’s Hutchison Whampoa to India’s Reliance Industries, have been frequent issuers in the G3 bond markets for some time. However, the growing number of debut issuers and smaller, lesser-known companies is driving demand for local experts who can help tell the good credits from the bad.

“Within Asia, we have hired local people who can speak Mandarin, develop relationships on the ground and keep a close watch on the local flow,” said Chris Gootkind, director of credit research at Loomis Sayles, a Boston-based investment firm with $221 billion of assets under management at the end of June.

Loomis, like many of its competitors, plans to add more analysts as Asia, particularly China, accounts for a greater percentage of its global credit portfolio.

“Our share of Asian credit has grown to between 2 percent and 5 percent in our diversified debt portfolios, and as we increase that ratio, we will look to add more people on the ground,” Gootkind told IFR, a Thomson Reuters publication.

The hiring trend at investment houses in Asia and elsewhere presents a striking contrast to what is happening at global investment banks and brokerages, where tougher regulations and thinner trading profits have fuelled a slow exodus of credit traders and analysts.

In many cases, sell-side credit professionals are seeking new jobs at buy-side firms, where the lighter regulation allows them to command higher salaries, head hunters say.

KEEPING PACE

Adding more local expertise will help investment funds distinguish the better credits when new offerings are announced. It will also allow them to identify opportunities before the competition, investors said.

Keeping up with Asian debt issuance is already difficult as emerging-market investors, including big local private banks, usually corner the bulk of the offerings. During a busy period, however, it can be even more difficult to seize an investment opportunity, especially if the managers are based in Boston or London, buy-side sources said.

And the Asian G3 bond market, which has posted record volumes in each of the last three years, has been busy for a while. As such, resources on the buyside have been stretched.

Last year, G3 volume from Asia, excluding Japan and Australia, reached $142.8 billion, according to Thomson Reuters data. So far this year, borrowers from the same region have priced $138 billion of new issues, well on their way to besting the 2013 figure.

Diversification has also played its part in asset managers’ Asia push. As the U.S. debates raising interest rates and the euro zone battles with deflationary pressures, investors have had to look elsewhere for returns.

Investors have found many Asian companies with healthy balance sheets and solid growth prospects.

“Fifteen years back, this wasn’t the case as US portfolio managers would come to Asia and look at only the Philippines [US dollar sovereign bonds],” said the head of Asian credit research at a bulge-bracket investment bank in Hong Kong. “Nowadays that approach would certainly spell disaster.”

CHINA ISSUES

What is more, buy-side professionals at global firms say they are also adding more local analysts to help them diversify within their expanding Asia portfolios.

Many firms that were initially attracted to Asia because of the proliferation of the Chinese offshore dollar bond market are now questioning the size of their exposure to mainland issuers.

“We closely follow the China market and we actively monitor our portfolios to see we don’t have a larger-than-needed exposure to China credits in our Asian portfolios,” said Loomis’s Gootkind.

Over the last few years, the share of China risk in portfolios tracking Asian benchmark bond indices has grown to nearly two-fifths from a negligible figure before the financial crisis, according to Morgan Stanley strategists.

That means a pension fund manager outside the region buying a basket of Asian debt indexed to the popular JP Morgan Asia Credit Index, for example, could be buying a larger China exposure than anticipated.

While China remains very attractive to Western asset managers that are searching for yield, they are starting to seek more investment targets in the region’s other growing markets, especially as the world’s second biggest economy copes with slower growth and falling property prices.

“So we look for opportunities in India, Indonesia and the Philippines, and by putting people on the ground we hope to actively monitor that risk,” Gootkind said.

At the same time, investors say they are careful about buying bonds issued by PRC-based companies because mainland issuers often lack the balance-sheet transparency of companies in the U.S. or Europe.

“This is an issue in China,” said Shaun Roache, resident representative for Hong Kong at the International Monetary Fund. “We haven’t been through a full credit cycle. All international banks, [the Hong Kong Monetary Authority] and the IMF are in the dark. There are uncertainties. To some extent, the system in China has implicit guarantees and [we don’t know] what that means for credit risk.”

By adding more local research analysts, investment funds say they hope they can better measure risks of investing in China and elsewhere in Asia. (Editing by Richard Borsuk)

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