Asian insurers returning to foreign debt: BlueBay

Asian insurance firms are starting to look at overseas fixed-income assets again, while investors in general in the region are showing interest in convertible bond funds for the first time, says Charmian Wan of BlueBay Asset Management.

Meanwhile, Australia is a likely choice for the UK fixed income house's next office in Asia-Pacific, after Japan and Hong Kong, although there are no immediate plans on that front.

Wan, BlueBay's head of sales for non-Japan Asia, has seen more interest from insurers in its fixed income funds in the past six months or so. This comes after a drop-off in demand since 2008, when many insurers in Asia stopped investing offshore amid general risk aversion.

“There have been a lot of conversations and there's a strong pipeline of potential business,” she notes. A wide range of asset types are being discussed, many with an investment-grade component to them across developed and emerging markets, including less typical plays in Asia.

For instance, BlueBay's global convertible bond fund is starting to attract interest from a few institutions as well as wealth management firms, something that has not been the case in the past, says Wan. The firm also late last year launched emerging-market and investment-grade convertible bond (CB) funds, in October and November respectively.

“Asian clients are no strangers to investing in single-name convertible bonds,” says Wan, “but they have not been big investors in CB mutual funds. Now we’re seeing that happening.”

One reason for growing interest in CBs, she suggests, is that many investors have been very underweight stocks in the past couple of years, and there is now some desire to move back towards equities. Concerns about compression in bond yields and a somewhat more positive growth outlook in some parts of the world are the main drivers, she argues.

CBs provide exposure to equity upside while maintaining the downside capital protection of a fixed-income instrument, notes Wan. “Historically, you almost can't convert a non-CB investor into a CB investor,” she says, “but this trend is slowly changing, which is encouraging.”

Do concerns that investments such as high yield and emerging-market debt are oversold and ripe for a crash worry BlueBay, as a specialist in such assets?

Wan is sanguine, noting that the fund house invests across the entire fixed income spectrum, including sovereign bonds, investment grade, high yield, private lending, distressed debt and CBs.

“You can’t make a blanket statement saying ‘[fixed income] yield has come down overall, so it’s not good value any more’,” she says. “There are pockets that still make sense.”

For example, there is a lot of interest now in BlueBay’s absolute-return products, Wan adds. Some clients are worried about inflation, so are looking at products such as EM inflation-linked bond funds. Private lending to European small and medium-sized enterprises is also a key focus now, she notes.

Many of these SMEs run good-quality businesses and want to expand but can't get funding, says Wan. “We originate the lending to them directly. The opportunities have only become attractive because the European banking system is so distressed.”

Meanwhile, Wan is optimistic about gaining business from Australia as its newest area of focus in Asia-Pacific. Last year BlueBay hired Ciaran McAssey as head of sales for Australia and New Zealand. He has 16 years’ experience and has been involved in developing institutional sales capabilities for Australian asset management businesses.

The firm is working on securing mandates from Australian superannuation funds. If it gains decent traction, says Wan, putting an office on the ground would make sense as BlueBay’s next regional presence. “If we do well in Australia, there’s no reason we can’t open there.”

McAssey brought the Asia-Pacific sales headcount up to four – all based in Hong Kong – including dedicated executives for South Korea and Taiwan. Wan covers the other markets, such as China, Hong Kong and Southeast Asia.

BlueBay's main focus is institutional business, but having opened its second Asia-Pacific office in April 2011, last year it told AsianInvestor it was increasing its focus on the retail segment in the region, particularly wealthy individuals.