Barclays is building a fixed income research and institutional advisory business in Asia Pacific, and yesterday named Sonia Lee as regional head of fixed income advisory.
In this newly created position in Hong Kong, she coordinates the research and investment advisory teams in Dubai, Hong Kong and Singapore.
Lee joined Barclays in January 2011 as a director on its North Asia active advisory team, specialising in fixed income. She reports to Bryan Henning, head of global investments and solutions for Asia Pacific, the Middle East and Africa.
The UK bank also aims to add foreign exchange specialists this year. “Fixed income and FX are two areas that will continue to grow in the private banking space,” he says. “Structured products have made a comeback.”
Barclays’ fixed income buildout involves shifting 20% of its advisory workforce across Dubai, Hong Kong and Singapore to focus specifically on fixed income for its largest private banking clients in Asia. The firm may add more staff to the fixed income advisory business this year, says Henning.
“Fixed income advisory is where we will look to differentiate ourselves,” he tells AsianInvestor, declining to give specific headcount numbers.
Coming out of the financial crisis, plummeting interest rates meant that, generally speaking, investors in bonds made money “with little regard to the underlying credit risk and, as such, curves were not differentiated for different risk in terms of either geography, sector or credit grade”, he says.
Low interest rates made buying distressed high-yield bonds “the easiest trade in town", notes Henning, adding that “people made a ton of money".
There were “significant profits made on perpetual and other issuances by a wide range of corporates and financial institutions", he notes, citing bond prices rising from $100 to $108-110 "in a short time from launch".
“We’ve had a lot of new issues in Asia over the last three years. People have piled into [bonds] very narrowly," says Henning. "When money was free and everyone was happy, no one priced in the risk appropriately.”
This will change, he argues. Views vary on when interest rates will rise, but many expect a gradual increase the first half of this year. As this happens, many investors that had piled into bonds “may not necessarily be aware of how to position their portfolios in a rising rate environment”.
Investors will need to pay closer attention to how underlying bonds are priced in terms of maturity and credit strength, says Henning. It is also imperative for them to understand the differences and risks between sovereign bonds and semi-sovereign bonds, and bonds issued in Indonesia versus those issued in Korea or India, for example.
“Continuing to invest blindly or not rotating out potential problem issues will result in significant losses as the market regularises,” Henning cautions.
With regard to other asset types, he notes a shift by ultra-high-net-worth individuals towards private equity funds and distressed credit strategies, as they increasingly seek to diversify away from equity and fixed income.
He also flagged socially responsible investing (SRI) as an area that Barclays expects to become more popular in Asia. The bank is planning to roll out a programme for connecting its clients with organisations that are active in this area.
“I believe [SRI] will be an ever-increasing area of interest as philanthropy continues to become an area of importance to the wealthy demographic in Asia,” Henning says. He notes that many of the countries most in need of donations are close to the wealthy client bases in Hong Kong, Singapore and India.