Credit Suisse First Boston is launching the Institutional High-Yield Index designed to serve as a more representative benchmark for institutional high-yield portfolio managers, according to Jonathan Blau, director in CSFB's leveraged finance research group. The new index will not include distressed issues--most likely defined as issues trading below 60, as those have a much greater risk of default and are not typically held by mainstream high-yield managers, Blau says. It will also leave out issues of less than $150 million.
Tom Parker, portfolio manager at Barclays Global Investors, played a key role in its development. Parker says he will take the new index to his institutional clients and ask that they use it to measure his performance, as he believes it more closely reflects his strategy than mainstream indices. "Most of our clients view distressed as a different asset class. They hire different managers. There's a five-year lockup, lots of lawyers, extensive analysis and lots of bankruptcy work. It's much more equity-like risk and hopefully equity-like returns," Parker says.
Parker and Blau, who used to work together on the sell-side, say having a high-yield index probably results in some increased trading revenues for dealer firms. "We're not going to give up half a point on a trade, but if we can get similar execution we want to reward the people giving us trade ideas," Parker says.