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| Anthony Robertson |
BlueBay Asset Management in London will put up to €200 million in new cash to work in U.S. and European high-yield assets before the end of the year in its long-only fund, according to Anthony Robertson, senior portfolio manager and co-head of high-yield. "BlueBay kept the long-only fund to about €60 million while building up a track-record," Robertson said. Now that it has two years of performance under its belt it is targeting €500 million in funds under management a year from now and €1 billion two years hence.
The fund manager is looking to take advantage of a technical imbalance in the third and fourth quarters. "There's a lot of supply coming on in the next two quarters, which is likely to improve pricing in the primary market as well as the secondary market as investors lighten up in certain names ahead of the new issues," said Robertson. The manager noted that the balance of power in the primary market seems to be shifting back toward buyers and he does not expect to see a return of the aggressive call features and claw-backs that deals included this spring.
The long-only high-yield fund includes bank debt and credit default swaps and Robertson is looking to increase the proportion of both. "We currently hold about 8% of bank debt and CDS combined but are looking to move that closer to 25% as our fund grows," he said, noting that bank debt offers seniority and stability as well as attractive returns.
Robertson expects credit differentiation to increase over the coming months, with a bifurcation in performance between higher- and lower-quality names. He emphasized the need to target individual bonds rather than industry sectors.
The 9.5% of '13 bonds of TVN Finance, a Polish broadcasting company, look attractive because the parent is likely to go public later this year. That process could result in the high-yield bonds being called, according to the asset manager. Another potential target is the paid-in-kind notes of Jefferson Smurfit, a packaging company. "Jefferson is cheap relative to the packaging sector and it's likely that the bonds will be called next year," Robertson explained.
The fund's goal is to outperform the Merrill Lynch European High-Yield Index by an average of 300 basis points per year through the cycle. In terms of credit quality and duration, the fund is about neutral the benchmark, with the bulk of investments concentrated in high single-B credits and duration at just over four years.
