So when 25 prominent institutions, including Dutch pension giant ABP and London fund managers Barclays Global Investors and M&G, signed a formal statement last month calling for more protection for investors in these markets, they never imagined how controversial their initiative would be -- particularly with a fellow institutional investor.
“This document is utterly naive,” fumes James Foster, head of credit at Isis Asset Management. He emphatically rejects the institutions’ plea for universal information-disclosure standards and bond terms that are more clearly spelled out. “Of course everyone wants better covenants,” says Foster, 36. “But I don’t want issuers in the sterling and euro markets put off by this ill-thought-out nonsense.”
Big investors can’t dismiss Foster. London-based Isis has $95 billion under management, and its $24 billion in U.K. corporate bond holdings puts it among the top five buyers in that market.
The respected Foster argues that instead of imposing rules on bond issuers, investors should let the market set its own price for covenant protection. “No one is forcing anybody to buy a bond he doesn’t want,” he says. “The problem is that the rule of unintended consequences applies. If you are prescriptive, you risk putting off issuers altogether.”
