“We have been preparing this launch for a while, and the timing is now perfect since the big sell-off [in high yield Asia bonds] in March,” Desmond How, head of fixed income at Gao Teng Global Asset Management told FSA.
The Gao Teng Penguin Asia High Yield Fund, managed by How, was incepted on 28 April with a mandate to generate income and capital gains by investing in the region’s high-yielding sovereign, quasi-sovereign, bank and corporate debt markets.
“A big focus will be on China property bonds, which make up around half the Asian high yield universe, and China issues, in general, represent about 50% of our portfolio,” said How.
The portfolio composition is unconstrained by a specific benchmark, and is able to take exposure (up to prescribed limits) in credit-linked notes, subordinated bank debt (including contingent convertible bonds), other collective schemes as well as derivatives. At least 80% of its net asset value must allocated to non-investment grade bonds, and it can also buy local currency-denominated debt, including China fixed income securities traded on the China interbank bond market.
“Once we get past the recession, the ‘reach for yield’ evident last year will resume, [and] high-yield bonds over the next five-to-ten years are going to be the darlings of investors. This is a superb entry point for investors to lock in income as well as to capture capital gain,” said How, who previously spent a decade running Nomura’s proprietary trading desk.
The fund has the capacity to take as much as $2bn of AUM, and Gao Teng appointed Lemanik as the Ucits management company in Dublin and Brown Brothers Harriman as the fund administrator.
How believes that the Ucits structure is the most suitable to attract global investors.
“Ucits funds have a well-established infrastructure and regulatory environment with high international recognition by institutional and retail investors. They also provide flexibility for asset managers because they can be cross-registered in other jurisdictions,” said How.
“Launching this product as a Ucits fund is consistent with our global strategies, as we’ve seen increasing interest from domestic and international investors in Asian high yield bonds.”
Gao Teng is the Hong Kong-based joint venture between internet giant Tencent and Beijing-based Hillhouse Capital Group. Hillhouse has about $20bn in AUM and specialises in alternative assets such as hedge funds and private equity investments.
The entity has had an asset management licence (Type 9) since 2015 and received an advising on securities (Type 4) licence in June 2018, according to Securities and Futures Commission records.
At the start of this year, Gao Teng was one of several asset managers positive about the outlook for Asian high yield bonds when the most serious threat to a benign global economy seemed to be a resumption of the Sino-US trade dispute.
“Asian fixed income, which has comparatively high yields, should continue to benefit from a slow growth, low inflation environment, [while] the increased share of negative interest rate bonds will continue to attract inflow to Asia due to its high absolute yield,” Wonnie Chu, the firm’s managing director of fixed income told FSA in January.
Chu manages the Gao Teng Asian Income Fund, which was launched in October 2018. It was the firm’s first SFC-authorised mutual fund, and was followed by the launch of two money market products last year.
