Anyone who’d buy a European high-yield bond these days must have a high tolerance for risk. Anyone who’d buy a European high-yield bond firm must have an even greater taste for danger. Stephen Peacher undeniably qualifies as bold. The chief investment officer of the credit team at Putnam Investments has engineered the big U.S. firm’s acquisition of New Flag Asset Management, a European high-yield boutique based in London. Peacher’s calculated bet: The high-yield market’s horrendous performance will end before long.
Set up in 1998 by veteran bond portfolio managers Anton Simon and Pierre-Olivier Masmejean amid glowing predictions for the European high-yield marketplace, New Flag suffered from a terrible case of market mistiming. High-yield investors have endured losses for three straight years. And more European junk bonds defaulted in the first five months of this year than in the preceding 17 years -- E24 billion ($24 billion) worth.
To Peacher, who clearly thinks like a junk bond investor, all the gloom and doom signals a buying opportunity. “The high-yield market goes through cycles,” he says, noting that 1989 and 1990 were pretty horrible in the U.S. but set the market up for a good run. “We are near the end of a cleansing process in Europe. The TMT bubble was like the rat in the snake, but it’s almost through the system now.”
