Macquarie fixed interest mandate for BlueBay

Macquarie has appointed specialist emerging markets debt manager BlueBay to its list of fixed interest managers.

The UK boutique manager was formed five years ago and listed on the London Stock Exchange two weeks ago.

BlueBay Asset Management senior portfolio manager David Dowsett told Money Management in Melbourne on Friday that more emerging debt was becoming investment grade, thereby reducing risk.

“It is fair to say emerging market debt is high return, so therefore high risk, but there is a move toward quality in the index in recent years,” Dowsett said.

“In 1994 only 3 per cent of the emerging market index was investment grade, but now 40 per cent of debt is classed as investment grade, which has given the market a lift.”

With improving debt investments, more countries are expected to enter the index, which again will lift the importance of the sector for fixed interest managers, especially those looking for absolute returns.

But there is still risk in the sector, and Dowsett said by taking liquid positions in emerging debt markets assets could be disposed of quickly.

“We will only take positions that can be liquidated quickly if the news changes for the worse,” he said.

“BlueBay also has a credit scoring process where there are 10 factors to be satisfied before investing.”

The manager produces its own credit rating on a country’s creditworthiness and the investment is based on a one and six-month time horizon.

“We do not have a black box to make the investment decisions, it is done by humans,” Dowsett said.

“We look at the worse case scenario by forward looking at the country and the factors that could cause problems.”

He said the investment process, supported by liquid positions, meant BlueBay had never had a default on its books since inception five years ago.

“We live emerging markets,” Dowsett added.

The manager’s Emerging Market Bond Fund, which will be available to Macquarie investors, has a year to date return of 8.8 per cent compared to the JP Morgan EMBI Global Diversified Index return of 7.9 per cent.

Since inception, the BlueBay fund has produced returns of 18.52 per cent, which is 3.93 per cent above the index.

The manager currently has $US8.3 billion of funds under management.