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Sept. 19, 2019, 10:55 a.m. EDT

Hedge fund manager downplays worries about banks providing less liquidity to debt markets

Man Group CEO says worries about shrinking trading from dealers are ‘overstated’

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By Sunny Oh

DELIVERING ALPHA -- Luke Ellis, Man Group Chief Executive Officer, speaks on the Where in the World is Alpha? panel at the CNBC Institutional Investor Delivering Alpha conference September 19th in New York City. -- (Photo by: Heidi Gutman/CNBC)

Man Group CEO Luke Ellis said investors were overstating worries about how debt markets could no longer rely on banks to back-stop liquidity as their trading operations shrunk after the 2008 financial crisis.

The head of the British hedge fund manager said “markets have moved beyond banks providing liquidity,” or the ability to buy and sell a security without a sizable discount, at the CNBC Institutional Investor Delivering Alpha conference on Thursday. Instead, liquidity was being provided by investment managers able to deploy hundreds of billions of ready funds, he said.

He pointed out the amount of securities passing through Goldman Sachs trading desk was now overshadowed by the buying and selling of assets by Pimco, the biggest actively managed bond fund manager in the world.

See : Legendary bond investor: When trade war escalates, stay away from this corner of the market

Some market participants have shared concerns that the introduction of the Dodd-Frank legislation in the wake of the 2008 crisis pushed banks to winnow down the balance sheets of their market-making operations, draining a key source of liquidity. Without dealers to jump into the market to scoop up beaten-down securities, the worry is corporate debt prices may fall more sharply than expected during the next downturn.

“There is an amazing amount of client capital around when anything backs up in yield,” said Ellis, suggesting there were plenty of investors who were looking to buy assets on the cheap.

The iShares iBoxx $ High Yield Corporate Bond ETF /zigman2/quotes/204471305/composite HYG +0.47%   is sitting on a total return of 11.5% year-to-date. Over the same period, the iShares iBoxx $ USD Investment Grade Corporate Bond ETF /zigman2/quotes/206919681/composite LQD -0.06%   had accrued a positive return of 14.2%, FactSet data show.

Read : Investors turn to credit derivatives amid fears of liquidity freeze in next market crisis

US : U.S.: NYSE Arca
$ 83.93
+0.39 +0.47%
Volume: 35.99M
June 3, 2020 4:00p
US : U.S.: NYSE Arca
$ 131.98
-0.08 -0.06%
Volume: 15.20M
June 3, 2020 4:00p

Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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