Fund Managers Diary
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Monday I take the family to Ludlow Castle in the Welsh Marches. This 12th century fort really puts life into perspective. The castle was built in the Middle Ages to control the borderland between England and Wales.
It makes you realise that the sword is actually mightier than the pen. Index-linked gilts are no protection against disorder and rebellion – you need 10-foot walls. It doesn’t rain, so I take my three boys on the Severn Valley Railway which runs from Bridgnorth to Kidderminster. After that, I play about 10 games of table tennis with my dad, sister and brother-in-law.
Tuesday I catch the 6.25am train from Goring, read the paper and check emails. The potential collapse of CIT, an American consumer finance company, is discussed in the morning meeting. We do not have direct exposure, but this could affect sentiment towards General Electric. We also review the Melrose trading statement, which the UK equity team like, so we might take a look at short-dated CDS [credit default swaps]. After the FKI acquisition in 2008, Melrose management is focused on debt reduction, which is normally good news for creditors. Our credit funds have no position in FKI-Melrose, but this discussion with our equity team could trigger a one- or two-year position – we will run the numbers first.
Wednesday I go to the Lanesborough Hotel for a breakfast presentation with ISS, an industrial services company that employs half a million people to sweep floors and guard stuff. No kidding. After Danish pastries, the management talk about bog cleaning and flower watering. What happened to the full English breakfast? ISS is launching a new issue of euro bonds, which will be gobbled up by the high yield community judging by the 11% coupon and level of attendance. It is standing room only and all feels very 2007. I catch up with one of our strategic bond competitors, which is always interesting. We like to compare notes on broker service and industry trends.
Back in the City, my colleagues James and Alex give a presentation on corporate bonds to our internal private client managers. This is a quarterly summary of performance, positions and outlook. It is a good chance for the wealth management team to hear our views and throw vegetables.
Thursday In the morning I meet an airlines analyst from Cazenove, ahead of a potential BA convertible bond issue.
We talk about the whole industry, economic recovery and budget airlines. He has a ‘buy’ rating on the UK flag carrier, given long-haul strength. This is a good example of cooperation with our equity desk.
The rest of the day is pretty mad. I have the weekly credit meeting at 2pm, where Dan and James review Electricity North West, ANZ, Centrica and RWE. Later in the day, Legal & General launches a subordinated bond issue with 10% coupon, which I use to cover my short in the life insurance sector. We get a disappointing allocation, but the secondary market price jumps 3% immediately.
Friday It came. The £350m BA convertible bond is launched with coupon of about 5.75% and conversion premium of 37%. We place an order for the strategic bond funds, but might hedge with CDS to protect our downside. There are five lead managers, so we expect carnage at the allocation stage this afternoon. We assign a B-rating to the issuer, given the £2 billion pension fund deficit. The equity team is on board as well.
It is 3pm and CIT has still not filed for Chapter 11. Maybe it's just a debt for equity swap. The evening is spent at a birthday dinner for my wife's mother.
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