Money managers under the microscope
One of the big drivers of the debt balloon that imploded so spectacularly was the trend for covenant “lite”, which has allowed zombie companies to stumble on long past the point at which it would have been useful for creditors to intervene. This has sharpened the appetite for stronger corporate governance around covenants and persuaded investors that they need to take more of an active interest in what companies are actually doing with their money.
Enter the engaged bond investor – for a long time the domain of equity investors with a social conscience, socially responsible investing (SRI) is now being applied to bond portfolios by asset managers Aviva Investors and F&C.
Paul Abberley, CEO of Aviva Investors UK, told Reuters that Aviva is adding a specialist bond fund manager in its SRI group, with scope to increase the headcount depending on how client interest develops. “Historically SRI has been viewed as an equity activity but we think there is a strong case for fixed income to be considered as well,” he said. Initially any offering would be mandate based, he said, with a fund launch dependent on client interest.
The move follows F&C’s recent decision to extend its corporate governance engagement to corporate bonds. “We are initially focusing our engagement where there is an overlap between our interests as shareholders and our interests as creditors,” said George Dallas, director of corporate governance at F&C. “We think this will enhance the assets under management that we are representing because a lot of companies are very debt focused.”
Hedge fund firms are finding themselves back in demand with mainstream asset managers despite a mixed record during the downturn. Threadneedle recently reiterated its interest in acquiring a hedge fund firm whilst adding to its absolute return range with a US equity long/short fund. The rise in interest has also been apparent in F&C’s purchase of Thames River at the end of April and Aberdeen’s recent buy of RBS’s non-core assets which gave the fund manager access to alternative products.
Threadneedle has been on the prowl for something in the absolute return space since last summer, but Campbell Fleming, head of distribution, said the hedge funds business remains “a work in progress”. “We continue to look at a lot of opportunities but not many suitable businesses have presented themselves,” he told Reuters.
Activist investors have traditionally been kept at arm’s length by the mainstream fund houses. Fund managers at the major players haven’t felt able to align themselves with those agitating for change for fear their cosy chats with company chairmen might be compromised.
There are clear signs though that the mood has shifted.
Not only are institutions getting rapped over the knuckles for failing to apply active ownership principles, but the credit crisis has purged short-termist activists from the market, helping to soften the sector’s association with financial engineering and slash-n-burn tactics.