Fixed-income firm BlueBay eyes Asia retail

UK fixed-income specialist BlueBay Asset Management is seeking to replicate its retail distribution model in Japan to other markets in Asia, such as Hong Kong.

Chief operating officer Alex Khein says that while the $44 billion credit manager’s primary focus since its establishment in 2001 has been institutional clients, over the past few years the firm has broadened its retail distribution. Today, it is managing 65% of total assets for institutional and 35% for retail, particularly high-net-worth individuals. 

BlueBay opened its second Asia office in Hong Kong in April last year with a purely sales and distribution function, relocating its director of Asia ex-Japan sales, Charmian Wan, from London to Hong Kong to run it. The bulk of investment and trading is done out of its London head office. Its first Asia office was set up in Japan in 2005.

“We have signed a number of distribution agreements and forged strong collaboration relationships with a number of Japanese banks," says Khein, without giving specifics. "They have distributed a significant amount of BlueBay products to their retail clients primarily through fund-of-fund structures."

The firm is in the process of completing regulatory registration in several jurisdictions in preparation for making its products available to Asian retail investors, but Khein declines to name which markets. Outside the region, BlueBay’s funds are distributed to HNWIs primarily via global private banks.

But given the longer operational history of other global fund houses in Asia, Wan (pictured) stresses that the firm will adopt a careful approach as it expands into retail.

“The cost of setting up distribution remains high," notes Wan. "Meanwhile the regulatory reporting standards are also set quite high in many Asian markets. Yet the retail distribution landscape in many Asian markets is crowded by big global fund houses."

Therefore, given the risk that the rewards for retail distribution might be disproportional to the costs, she says her team must assess carefully which countries they can find strong retail demand for in fixed income and alternative credit products.

Aside from bonds, BlueBay also invests into convertibles, European senior secured leveraged loans and runs a distressed debt hedge fund strategy.

Its Hong Kong sales office supports distribution to Taiwan, South Korea and Australia. For institutions, BlueBay is banking on the lack of depth in Asian bond markets to distribute European fixed income products to liability-driven investors, such as pension funds and insurance firms.

“Many of these organisations are very sophisticated. They are tapping the global market directly through segregated mandates and are focusing on a multiplicity of asset classes across emerging markets, global credit, sovereign and corporate bonds, be it high yield or investment grade,” says Khein.

In late 2010, the Royal Bank of Canada acquired full ownership of BlueBay AM to expand its asset management capability. Today the fixed income manager continues to be run independently from RBC. The two have collaborated on structuring retail fund products into the Canadian and US markets.

Wan says in Asia she is seeing institutional investors becoming more interested in getting higher fixed income returns via emerging-market bonds, high-yield bonds and convertible bonds. They will continue to remain the investment theme for the rest of this year and into 2013, she suggests.