Despite much discussion about the glut of investor cash “sitting on the sidelines” ready to be deployed, much of it could stay in money market funds in the near to medium term.
This is the view of Chris Hogbin, global head of investments at AllianceBernstein, who told FSA where the investment firm is focusing its resources over the next twelve months.
“Rates are coming down but they’re not going to zero, so my guess is a year from now we’ll still be having this discussion about this cash on the sidelines in money market funds,” he said.
Hogbin (main picture) did however, note that AllianceBernstein’s US fixed income products have been seeing “healthy flows” recently as some investors start to put cash to work in the face of rate cuts.
He said: “We saw a trickle ahead of the Fed cut and that’s really picked up.”
He explained: “The first place that money moves to is into fixed income with an attempt to lock in the kind of yield levels that are available.”
“In Asia, we’ve seen particular strength in our US fixed income product which has seen very healthy flows. We suspect a lot of that cash is coming through from money markets.”
Private credit
Although the firm’s bond business may be booming, it is making significant investments into private credit.
This explains why one thing that is top of mind for Hogbin is the “disintermediation of the US banking system by private credit”.
He said: “The banks are sort of stepping away, so how much further can that play out? Will we see that trend globalise beyond the US into other markets?”
On the asset allocation side, he said that investors appear “very willing to allocate into private credit and are prepared to sacrifice liquidity for yield”.
This investor appetite was enough to make AllianceBernstein in early 2022 purchase the $14.3bn private alternatives investment manager CarVal in a push to grow its own private markets capabilities.
“There has been a lot of focus on diversifying into private alternatives to meet our client’s emerging needs,” Hogbin said. “This also means building out the distribution teams and creating suitable vehicles for our investors.”
China pipeline
Another area of focus for AllianceBernstein is its China business, where Hogbin said there is a full pipeline of products that the firm intends to launch across the equity, fixed income and multi asset spaces.
The firm announced at the start of this year that it had obtained a license to run a wholly-owned mutual fund business in China, joining the ranks of BlackRock, Fidelity and Neuberger Berman.
“We launched our first IPO earlier this year of a China-A value strategy which I think is pretty differentiated in the market, because most equity strategies in China follow a growth style as opposed to a value style,” Hogbin said.
“We had good success managing a very similar offshore strategy for many years with strong alpha.”
“So going forward, as China’s economic growth slows from a hyper growth emerging market to more developed, mature OECD-like growth rate, value becomes a very interesting style while growth opportunities become scarcer.”
“It’s a bit like we saw with Korea 20 years ago. Certainly to the extent that analogy holds, value could be very interesting going forward.”
Hogbin is overall optimistic on China given the “compelling valuations” and “interesting, robust” parts of the Chinese economy.
