GLOBAL - Pictet has launched two new funds covering local currency emerging debt to tap into a market estimated to be worth US$3trn, almost five times that of the shrinking external debt market.
The Pictet Funds (LUX) Emerging Local Currency Debt fund is co-managed by Simon Lue Fong, Pictet Asset Management’s (PAM) head of emerging debt, based in London, and Rajeev de Mello, head of Asian fixed income in Singapore.
The Pictet Funds (LUX) Asian Local Currency Debt fund is also managed by de Mello, who was previously in Geneva as head of PAM’s fixed income team, but has relocated to Singapore to establish and build an Asian fixed income business.
Pictet said further new senior level recruitments were planned in London and Singapore in the “near future”.
Each fund will buy bonds in local currencies “to benefit from the extra opportunities provided by local interest rate structures and the dynamic features of the local currency,” Pictet said in a statement. The traditional method of investing in emerging countries is to buy bonds in hard currencies, mostly the US dollar.
Stephen Barber, group managing director and head of global marketing, told Global Pensions the new funds were an extension of what Pictet had already been doing.
“We have been running hard currency for a long time,” he said. “We have seen opportunities arise in local currency debt markets, and these opportunities run hand in hand with hugely improved economic fundamentals in some countries the last few years, for example China.”
Lue Fong said macro-economic improvements in many emerging countries meant investors had become comfortable with their risks, as seen in the spreads, which have recently falled to lows of 2% over US Treasuries.
“On the supply side, improved economic fundamentals means that these countries have the opportunity to switch from external to local funding, with obvious benefits,” he said. “If is more flexible, avoids FX risk, is potentially cheaper and opens the market for local companies to issue local debt, using the sovereign debt as a benchmark.”
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