Fortis Investment Management is starting an emerging markets collateralized bond obligation program. The firm has decided to create this new line of business to build off of its first emerging market CBO launched late last year and to capitalize on the excellent returns proffered by emerging market sovereign debt lately, says Raphael Marechal, senior emerging market fund manager in Paris. The firm plans to bring another deal this year, but will wait until there are good arbitrage opportunities in the market.
Fortis' first emerging markets CBO was a $154.8 million deal, which came to market in late November. Marechal says that CBO offered good diversification by investing in 40 emerging market sovereigns. In addition, there is a low correlation between the sovereign bonds, so if there is a default in one country, others will not follow suit. Also, contagion is less of a problem than it has been in the past, because the highly leveraged investors who had been players are largely out of the market, says Marechal.