UBS Money Managers to Exit After China Property Woes Hit Fund

Illuminated UBS Group AG logos outside the company's headquarters in Zurich, Switzerland, on Tuesday, Jan. 26, 2021. UBS plans to buy back as much as 4 billion francs ($4.5 billion) of shares over the next three years, bolstering shareholder returns after income from managing client assets and investment banking propelled gains at the world’s largest wealth manager. Photographer: Stefan Wermuth/Bloomberg , Photographer: Stefan Wermuth/Bloomberg

Rebecca Choong Wilkins and Cathy Chan, Bloomberg News

Nov 15, 2021

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(Bloomberg) -- Two UBS Group AG portfolio managers are leaving after a $3 billion fund got caught up in China’s high-yield bond meltdown.

Singapore-based Jiayi Yew and China-based Brian Lou will depart the bank in January, a UBS spokesperson confirmed. Both report to Ross Dilkes, the lead manager of the Asian High Yield fund who is also leaving the firm after about 16 years. 

The moves come as the bank’s Asian fixed income business has been roiled by fears of a debt crisis at China Evergrande Group spreading to the wider property sector. Switzerland’s biggest lender is among the top five holders of Evergrande’s offshore debt, according to data compiled by Bloomberg.

China’s regulatory tightening is blowing up one of the world’s most profitable bond trades and leaving some Asian funds headed for record annual losses. Property firms dominate the region’s sales of riskier debt and have long been favored for their juicy yields. Even with recent gains amid early signs of policy easing, many junk-rated property bonds remain at stressed levels as builders struggle to refinance their offshore notes. 

Dilkes’ fund has lost around 16% so far this year, with around half of its holdings in real estate including Evergrande bonds, according to data compiled by Bloomberg. 

Yew and Lou are part of the Swiss investment bank’s emerging market and Asia-Pacific fixed income team which comprises 26 investment professionals globally, 16 of whom are based in the Asia-Pacific region, according to UBS’s spokesperson. The firm plans to hire four more people after the departures. Yew and Lou did not immediately respond to emailed requests for comment. 

UBS held around $274 million of Evergrande bonds as at Sept. 30, the data show, and that includes holdings in funds like Asian High Yield that invest client money. The fund also has sizable positions in Sunac China Holdings Ltd. and Kaisa Group Holdings Ltd. 

Morningstar Inc. analyst Patrick Ge downgraded Asian High Yield following Dilkes’s departure, according to a report from the research firm Thursday. UBS’s Head of Global Emerging Markets and Asia Pacific Fixed Income Hayden Briscoe, who co-manages the fund, will take over as lead manager until a successor is found, according to Morningstar. 

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