(August 14, 2013) — As the search for better returns intensifies,
the Teachers’ Retirement System of Louisiana–manager of $14.7 billion in
public employee
The retirement fund appointed AllianceBernstein last week to invest $325 million into the overseas bonds to take advantage of the better returns available in European and Asian markets.
Speaking to Bloomberg, Dana Brown, the system’s director of public markets, said: “If rates are extremely low in the US, and there is some disconnect in credit opportunities in Europe and places in Asia, now is the time to branch out to see what is available. We’re broadening our diversification.”
Under the mandate, AllianceBernstein will be allowed to include senior bank loans in the high-yield investments if the firm believes it to be prudent.
High-yield debt is considered by ratings agency to be those rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s, making them commonly referred to as “junk bonds”.
The moniker clearly isn’t deterring institutional investors. Last month, The New Jersey Division of Investments, the manager of seven state pension funds valued at $74.3 billion, announced plans to add as much as $500 million to its high-yield portfolio next year.
Tim Walsh, director of the division who has since returned to the private sector by joining private equity house Gaw Capital as president and chief operating officer, told Bloomberg the pension fund may expand its high-yield holdings to more than $4 billion in 2014, up from $3.5 billion today.
A wealth of data seen by aiCIO over the past few weeks has shown sizeable inflows into the sector.
BlackRock reported ETF increases in high yield of $2.6 billion between February 2013 and July 2013. Lipper noted high-yield bond funds witnessed inflows of $5 billion in July and $490 million so far in August.
However, research specialists Cerulli warned in its latest update that investors should be wary of how they invest: “The European high-yield market has grown fast–and flabby at the edges. Benchmark huggers face losses and liquidity constraints if outflows pick up. A strategic rethink may be necessary to avoid being caught out.”
The sudden inflow of money has already had an effect on yields. A rush of new money helped push the average junk-bond yield down to 6.18% as of August 12, below the 7% levels reached in late June, Barclays told TheWall Street Journal.
Fund managers seem keen to catch on with the trend though: Aviva Investors is expanding its high yield capabilities, having poached Baring Asset Management’s Sunita Kara as portfolio manager for European high-yield earlier this week.
Legal & General Investment Management also appointed Horace Hung, a credit specialist from ManulifeAM, at the beginning of the month, to expand its Asian presence for global high-yield.
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