16 Sep 2010
BlueBay attracted record net subscriptions of $10.2 billion to reach total Assets under Management of $34.3 billion at the end of the financial year on June 30, rising to over $37 billion at the end of August. As in the previous financial year, investment grade strategies continued to account for the majority of the inflows with $8.6 billion recorded for the year. However, as the year progressed and the new credit cycle became more firmly established, it was encouraging to note the increasing strength of inflows into other strategies with higher risk-return profiles, most notably emerging market debt where net inflows were approximately $1.9 billion for the year (of which $1.7 billion were into the long-only funds).
At the end of the year, BlueBay's AuM in alternative products amounted to $2.7 billion, a reduction of 11% from the previous year. This reduction masks the strong investment performance achieved by the BlueBay Multi-Strategy Fund and a number of steps taken recently to revitalise BlueBay's alternatives business, which have included the launch of several new alternative funds and the creation of a specialist sales team.
The absolute investment performance was positive in all the long-only funds managed by BlueBay during the year. Relative investment performance was positive for emerging market debt and convertible long-only strategies, negative for the high yield long-only strategy and flat to positive for the investment grade strategy.
Total fee revenues were 36% higher at £137.4 million while the increase in costs was only 16% to a total of £88.2 million. For the year ended 30 June 2010, BlueBay increased its pre-tax profits almost threefold to reach £49.7 million (2009: £17.5 million).
More regulation
In exchange for the massive injections of public monies to stabilise the banking sector and to get the financial markets working again, governments now require greater oversight and control of the financial sector through increased regulation. Much of the regulation is targeted at the banking sector, however, even for non-banking firms such as BlueBay the challenges and constraints imposed by new regulations are likely to be significant.
But change also presents opportunities. The rapid deterioration in the public finances of many developed countries, of which Greece is a recent prime example, has redefined the approach to trading their sovereign debt. Good credit risk management skills are becoming an increasingly important complement to good interest rate risk management skills.
This creates a significant opportunity for a credit specialist such as BlueBay and the Board is enthusiastic about our recently announced plans to launch two new rates funds in the near future. We believe that the increasing oversight and regulation of the banking sector will lead to an acceleration of its disintermediation. Credit markets will have an increasing role to play in providing funds to corporate and sovereign borrowers around the world, which further reinforces the structural opportunities available to BlueBay.
New product launches
2010 saw a number of new product launches in both the long-only and alternatives spaces. In long-only, these included a new European high yield fund - the BlueBay High Yield Corporate Bond Fund and BlueBay's first long-only asset allocation product - the BlueBay Global Diversified Corporate Bond Fund. In alternatives, the new BlueBay Macro Fund already referred to was joined by the firm's second distressed debt offering - the BlueBay European Distressed Opportunities Fund. All have made successful starts, in terms of both investment performance and investor demand, and reflect our determination to build out our fund platform wherever we feel institutional investor demand and BlueBay's abilities and resources might combine to produce relevant and profitable new offerings
Looking forward, the first six months of 2011 will see a significant acceleration of new fund launches. In May 2010, the firm announced that it had hired an experienced portfolio management team to lead the development of a European government bond business to complement our successful investment grade corporate bond offering; with the first product launches in this new business area for the firm expected to occur by December.
A significant build out of the firm's high yield business is also underway; with the firm's first global high yield fund also slated for a late 2010 launch and analysts being hired in and relocated to our US office to staff this initiative. Further new launches are also planned in the alternatives space; with the firm's first UCITS alternatives fund (the BlueBay Emerging Markets Absolute Return Fund) launched in July and a closed end emerging markets special situations fund slated for later in the year.
Outlook
2010 was a classic early credit cycle year; with investors returning to credit markets in strength, but making the bulk of their allocations to the higher quality end of the market. For BlueBay, this meant significant growth in its investment grade corporate bond business; with assets in this division almost doubling over the financial year. The last few months of the year began, however, to produce evidence that the new credit cycle was moving into its second phase: one in which investors begin to move out along the risk curve and supplement their investment grade credit holdings with smaller allocations to higher beta sectors of the asset class - high yield bonds, distressed debt, convertibles and emerging markets. It seems likely that this trend will continue into, and dominate, the new financial year; with flows into emerging market debt likely to be dominant as investors react to the converging credit profiles of developed and developing market debt engendered by the sovereign debt crises of 2010.
At the same time, we expect returns from credit markets, which significantly outpaced those from equity markets over the first six months of calendar 2010, to continue to be competitive. We anticipate, from a macro perspective, an extended period of low global growth ahead and believe that well-selected coupons will represent a superior source of risk adjusted returns in such an environment.
At the end of the year, BlueBay's AuM in alternative products amounted to $2.7 billion, a reduction of 11% from the previous year. This reduction masks the strong investment performance achieved by the BlueBay Multi-Strategy Fund and a number of steps taken recently to revitalise BlueBay's alternatives business, which have included the launch of several new alternative funds and the creation of a specialist sales team.
The absolute investment performance was positive in all the long-only funds managed by BlueBay during the year. Relative investment performance was positive for emerging market debt and convertible long-only strategies, negative for the high yield long-only strategy and flat to positive for the investment grade strategy.
Total fee revenues were 36% higher at £137.4 million while the increase in costs was only 16% to a total of £88.2 million. For the year ended 30 June 2010, BlueBay increased its pre-tax profits almost threefold to reach £49.7 million (2009: £17.5 million).
More regulation
In exchange for the massive injections of public monies to stabilise the banking sector and to get the financial markets working again, governments now require greater oversight and control of the financial sector through increased regulation. Much of the regulation is targeted at the banking sector, however, even for non-banking firms such as BlueBay the challenges and constraints imposed by new regulations are likely to be significant.
But change also presents opportunities. The rapid deterioration in the public finances of many developed countries, of which Greece is a recent prime example, has redefined the approach to trading their sovereign debt. Good credit risk management skills are becoming an increasingly important complement to good interest rate risk management skills.
This creates a significant opportunity for a credit specialist such as BlueBay and the Board is enthusiastic about our recently announced plans to launch two new rates funds in the near future. We believe that the increasing oversight and regulation of the banking sector will lead to an acceleration of its disintermediation. Credit markets will have an increasing role to play in providing funds to corporate and sovereign borrowers around the world, which further reinforces the structural opportunities available to BlueBay.
New product launches
2010 saw a number of new product launches in both the long-only and alternatives spaces. In long-only, these included a new European high yield fund - the BlueBay High Yield Corporate Bond Fund and BlueBay's first long-only asset allocation product - the BlueBay Global Diversified Corporate Bond Fund. In alternatives, the new BlueBay Macro Fund already referred to was joined by the firm's second distressed debt offering - the BlueBay European Distressed Opportunities Fund. All have made successful starts, in terms of both investment performance and investor demand, and reflect our determination to build out our fund platform wherever we feel institutional investor demand and BlueBay's abilities and resources might combine to produce relevant and profitable new offerings
Looking forward, the first six months of 2011 will see a significant acceleration of new fund launches. In May 2010, the firm announced that it had hired an experienced portfolio management team to lead the development of a European government bond business to complement our successful investment grade corporate bond offering; with the first product launches in this new business area for the firm expected to occur by December.
A significant build out of the firm's high yield business is also underway; with the firm's first global high yield fund also slated for a late 2010 launch and analysts being hired in and relocated to our US office to staff this initiative. Further new launches are also planned in the alternatives space; with the firm's first UCITS alternatives fund (the BlueBay Emerging Markets Absolute Return Fund) launched in July and a closed end emerging markets special situations fund slated for later in the year.
Outlook
2010 was a classic early credit cycle year; with investors returning to credit markets in strength, but making the bulk of their allocations to the higher quality end of the market. For BlueBay, this meant significant growth in its investment grade corporate bond business; with assets in this division almost doubling over the financial year. The last few months of the year began, however, to produce evidence that the new credit cycle was moving into its second phase: one in which investors begin to move out along the risk curve and supplement their investment grade credit holdings with smaller allocations to higher beta sectors of the asset class - high yield bonds, distressed debt, convertibles and emerging markets. It seems likely that this trend will continue into, and dominate, the new financial year; with flows into emerging market debt likely to be dominant as investors react to the converging credit profiles of developed and developing market debt engendered by the sovereign debt crises of 2010.
At the same time, we expect returns from credit markets, which significantly outpaced those from equity markets over the first six months of calendar 2010, to continue to be competitive. We anticipate, from a macro perspective, an extended period of low global growth ahead and believe that well-selected coupons will represent a superior source of risk adjusted returns in such an environment.
