- Clients outside U.S. have been driving growth in such assets
- Japan investors shifting to riskier debt as local yields low
Neuberger Berman Group LLC, the money manager once part of Lehman Brothers Holdings Inc., is looking to boost assets under management invested in speculative-grade debt as it taps overseas buyers searching for higher yields.
“We might grow a billion or two a year on a net basis, and to me those are good growth numbers,” said Tom O’Reilly, who leads a team that manages about $40 billion in assets as the co-head of non-investment grade fixed income at the money manager. “You don’t want to grow too fast.”
Growth in assets managed by O’Reilly’s team has been driven by clients outside the U.S. for about the last six years, he said in an interview at the company’s Tokyo offices. Japanese institutional investors including the state-run $1.2 trillion Government Pension Investment Fund are moving into speculative-grade debt to boost returns at a time when the Japanese ten-year bond pays a yield of about 0.3 percent.
The move isn’t without risks as average returns on high-yield U.S. bonds have dropped to 0.05 percent this year from 2.5 percent in 2014 and 7.4 percent in 2013, according to Bank of America Merrill Lynch indexes. Funds from Japanese investors are growing “daily” according to O’Reilly, who said investors in the nation aren’t moving to exit the asset class because of increased volatility.
“When we do have volatility, they’re not just leaving, they’re actually considering should I add more because they know why that is occurring,” said O’Reilly. “It is incredible the amount of questions that come out of investors here, and it’s daily.”
Neuberger isn’t the only U.S. asset manager tapping demand from yield-hungry Japanese investors. Fidelity Worldwide Investment’s U.S. high-yield mutual fund manages 1.05 trillion yen in assets, and is one of the biggest bond funds in Japan.
O’Reilly’s team in total manages about $30 billion in high-yield bonds and $10 billion in loans, he said. Its Japanese investor base includes institutional clients such as insurance companies and pension funds, according to Takashi Ikushima, a managing director at Neuberger in Japan.
O’Reilly said he would like to boost investments in speculative-grade debt outside the U.S., and that the company doesn’t want to become too large in the U.S. high yield market.
“Where I think I’d like to grow is in the global product where it is a combination of emerging market high yield, European high yield and U.S. high yield,” he said.