With the Federal Reserve potentially on the cusp of hiking interest rates for the first time in almost a decade, Asia-Pacific asset managers are gearing up for what they see as good times ahead.
According to a recent survey from State Street, not only are the region’s asset managers making acquisitions in preparation for the rate hike, they’re also in the midst of boosting the number of their fixed income products as well:
“Nearly two-thirds (62 percent) of APAC-based respondents say they will expand their offering of fixed income alternative strategies to meet heightened investor demand.”
And they’re not stopping there: almost 60% of the survey’s respondents will be tapping into the derivatives market to hedge against interest rate risk, and nearly a third of them are looking to shorten the duration of their bond portfolios.
I knew that fixed income players were getting excited about the rate hike – after all, it will finally give some decent spreads to play with – but I didn’t know it was to this extent. All things being equal, if the survey holds true this could mean an explosion of funds within the Asia-Pacific’s sleepy fixed income market, not to mention a rise in the region’s equally quiet derivatives market.
However, it’s also quite worrisome. While I’m certain that the old guard is still around, a large number of traders and portfolio managers on the ground right now are young guns who have never experienced a higher interest rate environment, and there’s no way of telling how they’ll react to such a massive regime change.
ZIRP’s still on though, and no matter what, the geniuses behind those fund management companies will always find a way to get their fees.
Photo: Wiki