
Pensions overlooking potential bond returns from unknown names

UK - Pension funds could be missing out on returns from debt offered by high quality, but lesser known companies looking to raise cash through single bond issues.
M&G institutional credit fund manager Richard Ryan told Global Pensions more and more "one bond wonders" have been coming to market with favourably priced bond issuances, but because they have been from companies not well known in the UK, pension funds haven't been taking advantage.
Ryan said he has seen opportunities from "companies that are coming to market that have never come to market before and others that are not household names".
Ryan said companies are looking to diversify their sources of cash. Meanwhile, bank lending continues to be strained so companies are taking advantage of the low yields and reasonable spreads in the bond markets.
Motability, for example, a UK company that provides cars for the disabled, had traditionally been financed by the big four UK clearing banks - HSBC, Barclays, RBS and Lloyds, said Ryan.
Their first bond issue in April 2009 was offered with an all-in yield of 6.8% with a yield spread to Gilts of 3.4%. They have since come to the bond market twice.
But Ryan said these profitable issues are not on pension funds' radar screens.
"The real issue with this is that it's resource intensive," he said. "They need time and resources to get to know them...(It's) not something you pick off the shelf."
Corporate credit has been pension funds' sweethearts during the credit crisis.
"(But) as the value in the market starts to get eroded...the focus will shift from the market as a whole, to particular opportunities within the market," said Ryan.
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