UBS $3.3bn Asian high yield manager exits amid fund losses

view original post

UBS bond veteran Ross Dilkes, whose $3.3bn (€2.9bn) Asian High Yield fund has been hit by its Evergrande debt exposure this year, is to leave the asset manager.

Singapore-based Dilkes (pictured) is a 16-year veteran of the company and has been lead manager on the fund since it was launched nearly a decade ago. 

The fund has lost around 17% so far this year, with the slide accelerating in the third quarter as fears mounted about contagion in the Chinese property market. Nearly half of the fund’s assets are in China and 45.7% is invested in real estate debt.

Hong Kong-based Hayden Briscoe, head of global emerging markets and Asia Pacific fixed income, will take over as interim manager from 20 January until a successor is named. He will co-manage the fund with Singapore-based Michael Fleisch.

Dilkes’s departure has prompted Morningstar to downgrade the fund from bronze to neutral. 

Analyst Patrick Ge said: ‘His steady presence here and track record of success underpinned our confidence in the investment team, and his impending departure meaningfully reduces our conviction here.’

Dilkes has also been a co-manager on the UBS China Allocation Opportunity fund, which blends equities and bonds, for just over three years. Briscoe will also take over his responsibilities on the fund, with Gian Plebani remaining as lead manager, and Bin Shi remaining as the equity portfolio manager.

This fund is also down around 17% this year. Although Morningstar’s Ge described Dilkes’ upcoming departure as a loss to the mandate, ‘the continued presence of lead manager and asset allocator Gian Plebani, along with equity manager Bin Shi, provides reassurance and continuity’. The rating on fund was unchanged.

Beyond Evergrande

UBS was buying Evergrande’s bonds until May this year and has one of the largest exposures among emerging markets funds to the debt-stricken developer, according to Morningstar.

The Swiss bank has recently grown more positive on Evergrande’s bonds, estimating their recovery value at 30-40 cents in the dollar, up from the current value of 20 cents.

Evergrande faces a wall of debt totalling more than $300bn, with the next payment of $255m due on 28 December. The company has been limping to meet a string of deadlines in recent weeks, narrowly avoiding a default last month.

The Asian High Yield fund holds another embattled Chinese property developer, Kaisa Group, among its 10 largest positions.

Kaisa’s shares have nosedived more than 70% this year, prompting a halt in trading earlier this month, as concerns grew about its debt pile. Kaisa has the highest offshore debt of any Chinese developer after Evergrande.

Beyond Evergrande and Kaisa, UBS’s Asian credit team also holds a small position in Fantasia, which defaulted on a bond payment last week. Despite the surprise default, the team will maintain Fantasia’s holdings as it expects recovery values to be between 20-30 cents on the dollar.

Overall, the firm remains optimistic that an outsize ripple effect on China’s property and banking sector due to Evergrande’s fall is unlikely.