Fund Manager’s Diary

Sunday Go out for a nice lunch with the family and have a lovely day. Go to bed then get a phone call from the managing director and head of fixed income sales at Goldman Sachs asking if I have heard the news. All their London traders are at the desk on a Sunday night. The Federal Reserve has opened a special window of opportunity for two hours for Lehman swap over-the-counter counterparts to unwind open trades with other counterparties to Lehmans.

I immediately call Legal & General’s head of fixed income and structured credit to agree our next steps. It is clear to me Lehmans is going to the wall. This is going to be a long week.

Monday Risking life and limb I take the scooter into work. Arrive at 6.45am and continue making the fund more defensive in respect of credit, something that I started last week. Thankfully, because of the Ucits III rules that Dynamic Bond Trust operates, I am not limited to the physical market as liquidity evaporates. As they say, liquidity is always there except when you need it.

Arrive home too late to say goodnight to my three children so I watch events unfold on the television.

Tuesday Back at the desk and in the space of a day Lehmans has gone and Merrill Lynch has been taken over by Bank of America. The Fed orchestrated the deal to avoid a domino effect. I have not seen anything like this in 20 years in the business. We are looking into the abyss.

The last trade of the evening I place is selling protection on a particular bank’s debt with an expectation that it will be bought out soon. If this scenario pans out, I stand to profit from the subsequent spread compression.

Wednesday AIG has been bailed out by the Fed and a good job too. They stand on the other side of a great deal of outstanding residential mortgage-backed securities. The other biggest counterparty in the market had been Lehmans, so AIG cannot be allowed to fail too.

The asset allocation team give us a formal macro update following the market turmoil. Over the past two years we have doubled the size of the fixed income team and it is good to have so many talented people to draw on.

Thursday Yesterday was a bad day for equity markets. So bad, in fact, that even us fixed income guys, normally not too fussed about our more excitable colleagues across the floor, noticed the pain. There are rumours in the market that the American authorities will step in with some kind of intervention. This will be good for credit markets and negative for short-term interest rates.

I add to a position in a bank using derivatives. The reason for this being that any American bail-out of the financial system will result in a compression in the spreads of bank debt relative to government bonds.

Friday Up all night with the 15-month old twins – not good timing. At my desk at 6.35am and immediately place orders assuming the market will fall.

A good call resulting in a profit for the fund. Not all weeks are like this one – glad I have the toolkit for Dynamic Bond Trust to negotiate it. I enjoy a hard-earned drink with a few City friends who have chosen to meet at a pub with a cider festival.

Saturday The family and I are off to Cardiff for the weekend. I ask my wife to drive, for once, leaving me some time for the little grey cells to recover and enjoy the scenery on the M4.

  • Richard Hodges is the manager of Legal & General Dynamic Bond Trust. His diary runs from Sep-tember 14-20