BNP Paribas has just brought on board Albert Hofman to boost its standing in fixed income research. With former fixed income research boss, Warren Mar now focused on building Singapore debt capital markets, and a string of defections, Hofman will be building from scratch. Here the former head of fixed income research at ABN AMRO outlines his strategy.
You have just joined from ABN AMRO. What are your plans for BNP Paribas's fixed income research. For example, will you hire?
Initially, I'll hire a couple of people. I'd like to map out first what clients' expectations are and what internal needs are. Rather than going out and hiring like a maniac and then figuring out what to do next, I'd rather work out how we will move forward, and then go out and hire in a targeted way.
Are you going to take a sector approach or a high grade/ sub-investment grade one?
The only thing I've made up my mind about at this stage is to get someone in at a senior level to take responsibility for Greater China. It's a market that I myself am not too familiar with, given my background and my five and a half years with ABN AMRO. My familiarity lies much more with the Indian subcontinent and Southeast Asia, and to some extent Korea.
So you want to get someone in who can write about Chinese infrastructure plays?
Yes. Chinese infrastructure plays, red chips, and ideally a native Mandarin speaker.
What will you cover?
I will do much more on the secondary market research side: strategy and relative value plays. And also profiling BNP Paribas's credit research in such a way that it becomes recognizable, and distinguishable from the more generic research. And that why we're currently going through this rethinking process. Given the state of the market there is really no value in the flow business at this stage - such as trading sovereigns. Plus I want to increase our exposure to the local domestic bond markets which are booming.
Which local markets interest you?
The focus will be Hong Kong dollar and Singapore dollar at the outset.
And one of the reasons your predecessor, Warren Mar has gone down to Singapore is to build that operation?
Absolutely, and hopefully I will be working quite closely with him.
Will you still do a lot of research on Korea?
Korea is a very lucrative market right now because there is captive demand - due to the rampant liquidity. There has been a lot of demand from Korean domestic investors for offshore assets, because of the arbitrage that is still very much possible. There's little point in us trying to explain the ins and outs of a Korean credit to a Korean investor. If anything they could probably teach us a thing or two. Having said that, from a new issue or supply perspective, Korea is still one of the few that can access the international capital market. So from that perspective Korea is a must in terms of our coverage.
What made you decide to take up the challenge of joining BNP Paribas?
It was twofold. One aspect was the challenge of rebuilding a team. In the same vein when I joined ABN AMRO five years ago I started from scratch. Here, we miss quality manpower on the research side. And there was the attraction of coming back to Hong Kong, which is a more dynamic environment than Singapore. And the second aspect, is BNP Paribas's track record in the local markets, especially Hong Kong. It also has a proven commitment to Asia.
Given the downturn we've seen, are there a lot of good people around to hire?
I've had a number of unsolicited calls from consultants and headhunters. But the ongoing difficulty is getting those people to understand what your needs are, rather than being inundated with a list of potential candidates. I'd rather get the right people to serve my needs, rather than go for 'cheaper' people who are immediately available. When you're looking to build a quality, but the same time relatively small team, that shouldn't necessarily be driven by a compromise on cost.
Do you need to hire someone with a good understanding of banks?
It's true that bank sub-debt has been very much in vogue over the past year. Going as far as hiring a sector specialist for banks, at this stage it may not be warranted. There is a lot of quality research out there on banks, and what BNP Paribas Peregrine produces on the banking sector, is definitely something we can leverage off. When you are talking about hybrid products, it is so close to equity; and when you are looking at banks, a lot of it comes down to regulatory environments and that dovetails well with a macro approach. So the need for a specialist may not be that pressing.
And will you focus on high yield?
High yield coverage will be included. But I think the high yield market is an opportunistic market driven by opportunistic events. Meaning that, for example, it may be driven by specific back-to-back trades and in those types of cases the need for research becomes questionable. And making a market in distressed debt, becomes a question of risk appetite. Having said that, there are limited gains to be had in the flow [high grade] businesses and there is a limit to the value one can add to the benchmark names.
How many people were in your team at ABN AMRO?
There were four in Singapore, and one in Thailand.
So it will be a challenging year for you?
Absolutely, but I think the timing is fantastic. We are now in the fourth quarter and we can now define exactly how we are going to go forward and come the beginning of next year we can rollout a credible, valued research product.
Will there be much emphasis on the euro, given BNP Paribas see it as a core strength?
There certainly will be. We brought the Chinese euro transaction to market, so certainly we'll build on that business.
Do you think Asian issuers still have a problem with the euro versus the dollar?
Of course, because they don't have a natural need for euros. But to the extent they can swap back to dollars at attractive rates, there is potential. BNP Paribas can also bring the structured products toolkit. Increasingly the days of the plain vanilla US dollar transaction are numbered, especially with the competiveness of the bank market and the way rates are going.
Do you think the quality of fixed income research has improved in Asia since 1997?
Broadly speaking, yes. Analysts have been pushed to include foreign currency exposure of respective credits, and refinancing risk. These are issues that prior to the crisis were too easily glossed over. Now they've become central themes.