Global credit funds & CLO's
September 2020 | Issue 227
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Opinion derivatives
Michael Huenseler
Michael_Huenseler_headshot
Some banks offer limited transparency, which makes cocos risky
September 2020 | Issue 227
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Born: Duisburg in North Rhine-Westphalia, western Germany
Lives: southern Munich
Education: studied economics at the University of Saarland in Saarbruecken, western Germany.
Hidden talent: passionate about landscape photography, particularly mountain ranges, though the jury is out on whether that is a talent, he says.
Last holiday destination: Dolomites mountain range, north-eastern Italy.
Favourite movie: About Time, a time-travelling romantic comedy starring Bill Nighy. “It carries a good story and leaves you with food for thought.”
Assenagon: invests in credit and equities. Also uses options and derivatives to invest in volatility, which it considers a strategy in its own right. It was founded in 2007 and has over €28 billion in assets, with offices in Frankfurt, Luxembourg, Munich and Zurich.
Career: After starting at Deutscher Investment Trust, Huenseler worked at Deka and HVB. He was at UniCredit for two years as head of credit risk strategies and analytics, before joining Assenagon in 2012.
Bucket list: More interested in collecting memories — such as hiking and climbing in the Alps — than things.
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Q. What is the best credit investment you have ever made?
A. It was actually a hedge. In 2009 we correctly predicted that a French company — a constituent of iTraxx Main — would go bust. We did not believe in the company’s business model. We had some exposure to the company but were able to buy really cheap protection via credit default swaps, which more than compensated for the losses when the firm had to restructure and the CDS went into auction.
Q. What are the best and worst investments in credit?
A. I’d say they are in the same part of the market: contingent convertible bonds. There are some cocos that yield 6-8%, where we view the possibility of a bail-in as being very remote. However, some banks offer limited transparency, which makes an investment in cocos risky.
Q. And what is the worst credit investment you have ever made?
A. This was in 2018, when an investment in an Italian building company went sour. It had working capital issues but claimed to be making progress in collecting receivables, which turned out to be castles in the sky. It was definitely one of those lessons to be learned.
Q. Who is your inspiration?
A. Jörg Kukies, who was the co-chief executive officer for Goldman Sachs in Germany and is now our deputy finance minister. He is one of the most intelligent people I have had the pleasure of meeting, but what makes him stand out is his very humble and friendly attitude. It’s a rare combination, which deeply impresses me.
Q. Explain your firm’s name?
A. Assenagon is derived from the word in Greek which means “without competition”.
Q. What are your expectations for credit performance?
A. Clearly, credit losses will rise but central banks and governments seem to have decided that these problems can be solved by throwing money at them. So I’d advocate going long credit for the time being, but closely monitoring the situation.
Q. How do you express this view?
A. We typically go long via corporate bonds or single name CDS. At the moment, bonds offer a sufficient premium over CDS contracts. But we like the fact that we can invest in CDS on a name across a range of tenors, whereas if you are buying bonds then most of the time there is only a limited set of maturities available. We typically go long via corporate bonds or single name CDS. At the moment, bonds offer a sufficient premium over CDS contracts. But we like the fact that we can invest in CDS on a name across a range of tenors, whereas if you are buying bonds then most of the time there is only a limited set of maturities available.

We tend not to use credit indices as much because we pride ourselves on being credit pickers, so single names are our speciality.
Q. What needs to change about the way the credit industry does business?
A. The fixed income market is in a structurally deficient but stable equilibrium. Despite efforts to bring about change it is still often trading by appointment, which is reminiscent of medieval times. We can learn from equities, where different stocks trade in different markets to really improve liquidity and transparency.
What was your first job in credit?
In 1996 I joined Deutscher Investment Trust, the fund management business of Dresdner Bank. I was tasked with investing in emerging market credit and US high yield bonds. Later, my career took me away from asset management, but even then I have always been involved with managing fixed income and credit risk. Since joining Assenagon in 2012, where we offer investment fund solutions with an emphasis on credit, I have now come full circle.