Newspaper article St Louis Post-Dispatch (MO)

Beaten Up Emerging-Market Slump Punishes Fund Manager

Newspaper article St Louis Post-Dispatch (MO)

Beaten Up Emerging-Market Slump Punishes Fund Manager

Article excerpt

Peter Wilby, 35, a bond manager at Salomon Brothers, plays hockey two or three times a week in a league "with other men who are denying their age."

Wilby came to work one day recently with a swollen face that advertised an unfortunate encounter with a puck. But that was nothing compared with the beating Wilby has taken in the emerging markets.

His Salomon High Income Fund - invested 65 percent in U.S. junk bonds and 35 percent in high-yield foreign sovereign debt - has fallen 5 percent since Feb. 1., after climbing 14.8 percent last year, with dividends reinvested. Salomon's Emerging Markets Income Fund, also managed by Wilby, dropped 10.6 percent in the same period, after rocketing 50 percent last year.

"To trade in these markets, you can't be nervous, but no one would have called me calm this past month," joked Wilby, who manages about $1.25 billion in seven closed-end funds.

Fixed-income funds have been having a rough time ever since the Federal Reserve raised U.S. short-term interest rates on Feb. 4.

The subsequent slide in bond prices forced hedge funds to sell in order to cover their bets, driving the markets down even further.

Just when it appeared investors couldn't get enough securities in emerging markets, they stopped buying. Last month, Oppenheimer Management Corp. raised $500 million for an India fund.

"If that fund was sold today it would be $100 million or less," said Wilby. "That's what a month does."

But Wilby says the worst of the slump is over. "There isn't the sell pressure anymore, but there's not a lot of buy pressure either," he said.

Emerging markets, once the quarry of rich foreigners and hedge funds, have been attracting more staid investors like pension funds, endowments and insurance companies. Investors are drawn by stories like Peru. When President Alberto Fujimori suspended the Legislature in 1992, loans sold for about 6 cents on the dollar. Now they're selling for about 60 cents.

The markets Wilby likes best are Mexico, Argentina and Morocco.

"Mexican Brady bonds are very cheap right now, and I see buying opportunities," said Wilby, who said the bonds are trading to yield 2. …

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