B6| Friday, February 21, 2020 THE WALL STREET JOURNAL.
BUSINESS & FINANCE
Emerging-market compa-
nies sold a record amount of
foreign-currency debt this
year, taking advantage of low
rates and investors’ appetite
for better returns despite
warnings about the growing
risks of a global borrowing
binge.
About $66.4 billion of
bonds denominated in U.S.
dollars, euros and other cur-
rencies have been sold this
year by nonfinancial busi-
nesses in countries such as
China, Mexico and Chile, ac-
cording to Dealogic data. That
is almost double the $34.2 bil-
lion raised in the first seven
weeks of last year and the
highest yet for the period,
which is traditionally a busy
time for issuance.
The growing debt pile
leaves the companies vulnera-
ble to any stark appreciation
in the foreign currencies,
which would drive up the cost
of interest payments. Busi-
nesses that rely on domestic
operations, such as real-estate
firms, are particularly suscep-
tible. Investors, meanwhile,
are taking on the uncertainties
involved in putting funds into
faraway businesses, with dif-
ferent standards of transpar-
ency and accounting practices.Emerging-market corporate
debt in foreign currencies is a
relatively new and illiquid
market.
But as returns in the devel-
oped world have collapsed—
with government bonds in Eu-
rope and Japan offering
negative yields—portfolio
managers at global debt funds
have begun buying up the
bonds from developing nations
alongside dedicated emerging-
market specialists. And while
people have been warning
about the risks of the global
borrowing binge for roughly a
decade now, investors have
thus far been largely un-
scathed.
That has prompted fund-
raising by emerging-marketMexican state oil company Pemex has raised $5 billion so far from the sale, in part, of its first lot of 40-year bonds.ALEJANDRO CEGARRA/BLOOMBERG NEWS
Shares of GAM rose 13%
Thursday.
GAM posted an underlying
pretax profit of 10.5 million
Swiss francs last year, down
92% from a year earlier, a re-
sult of asset outflows. Within
investment management, as-
sets fell 14% to 48.4 billion
Swiss francs as of December.
Head count at the firm was
down 12% in 2019 from a year
earlier, and further job cuts
are expected, Mr. Sanderson
said. The cuts are expected to
fall in the middle and back of-
fice, instead of hitting invest-
ment and distribution profes-
sionals, he said.
As of 2022, GAM hopes to
achieve a 30% operating mar-
gin, an underlying pretax
profit of 100 million Swiss
francs, and more than 80 mil-
lion francs in cost savings.
Asked on a conference call
about demands from activists
to find a strategic investor, Mr.
Sanderson said he believes
GAM needs to recognize re-
ductions in revenue and ad-
dress its cost base.
GAM in January said it
would pay a penalty of
400,000 francs and costs of
about 100,000 francs to settle
an accounting-related matter
brought by the Swiss stock ex-
change in December.LONDON—Swiss asset man-
agerGAM HoldingAG said it
would slash jobs and stream-
line its operations as part of a
new cost-cutting strategy
aimed at stabilizing itself after
nearly two years of turmoil.
GAM, once owned byUBS
GroupAG, has been struggling
to improve its profitability af-
ter it dismissed a star bond-
fund manager for alleged mis-
conduct and liquidated some
funds, prompting investors to
pull billions of francs.
The crisis has weighed
heavily on GAM’s market
value, with the asset man-
ager’s shares falling by more
than two-thirds since the con-
troversy began in mid-2018.
In the overhaul, unveiled
Thursday as the company an-
nounced a sharp fall in profit,
GAM is targeting a cost reduc-
tion of 40 million Swiss francs
($41 million) by the end of
next year.
Chief Executive Peter Sand-
erson, who took over in Sep-
tember, said he would give up
a fixed cash reward of 250,000
Swiss francs while the man-
agement board would forgo a
bonus. The company also pro-
posed no dividend for the
year.BYJULIESTEINBERGGAM Tightens Belt
As It Outlines Goal
To Regain Stability
BYAVANTIKACHILKOTIAny sudden shock to the
global economy could see for-
eign funds rush out of emerg-
ing markets and into haven as-
sets, leaving investors holding
an illiquid pool of securities.
The market for emerging-
market bonds “is very hot
right now,” said Akbar Causer,
emerging-markets portfolio
manager at Eaton Vance. “It’s
very easy for a company to
come to the market, especially
if you’re in a country that’s in
favor.”
Businesses are refinancing
their existing debt to lock in
low rates ahead of any market
volatility in the months lead-
ing up to the U.S. presidential
elections, or in case unfore-
seen events like the coronavi-
rus epidemic roil markets.
The cost of borrowing has
dropped for emerging-market
companies, whose bonds are
generally priced in reference to
returns generated by the safest
assets: U.S. government bonds.
As the yield on 10-year Trea-
surys plummeted to 1.550%,
from 2.647% a year ago, the re-
turns demanded by investors
on debt from emerging mar-
kets have also dropped.
“It has been very opportu-
nistic,” said Chris Mey, senior
fund manager at European as-
set manager Candriam.
“There is a sense that when
you hit these lows in Trea-
surys, you don’t know when
something unforeseen could
happen to markets and then
you have missed the opportu-
nity.”companies to be five to six
times oversubscribed this
year, according to estimates
from Union Bank analysts.
The biggest deals reflect in-
vestors’ willingness to take on
added risk: Mexican state oil
company Petróleos Mexicanos,
for instance, raised $5 billion
so far through the sale, in
part, of its first lot of 40-year
bonds. That comes even as an-
alysts expect Pemex, the
world’s most indebted oil com-
pany, to soon lose its invest-
ment-grade rating from
Moody’s Investors Service.
The market is “company
friendly and not investor
friendly,” according to Mr.
Causer, who says that recent
borrowing has come with lim-
ited strings attached in the
form of legal covenants that
would protect creditors.
Still, the data on record
bond sales to overseas inves-
tors tell only part of the story.
The portion of emerging-mar-
ket nonfinancial corporate
debt—including bank loans—
denominated in foreign cur-
rency had fallen to just over
10% in September, from over
15% a decade earlier, according
to data from HSBC Holdings.
Companies in emerging
markets, and China particu-
larly, have been borrowing
more in their local currency in
recent years as domestic capi-
tal markets developed and
central banks across the globe
slashed rates, according to Ali
Cakiroglu, an emerging-mar-
kets strategist at HSBC.Foreign Firms Sell More Debt
Emerging-market
companies sold record
amount of debt in other
currencies this yeara floor in their Manhattan of-
fices last February.
Hedge funds that bet on
and against stocks like Sena-
tor, which also invests in debt,
have been under pressure as a
record bull run continues and
funds’ returns lag behind the
broader stock market. Manag-
ers variously attribute elusive
returns to more competition,
the rise of quantitative and
passive investing and contin-
ued monetary easing.
Differing investment strate-
gies favored by each Senator
founder were responses to
those broader changes, said a
person familiar with the mat-
ter. But they were so far
apart—requiring different
kinds of research teams, lock-
ups of investor capital and
methods of managing a port-
folio—that it was unclear how
both could exist within one
firm, he said.
Mr. Klabin in the past year
has spoken about starting a
family office, launching a fund
outside of Senator with some
Senator employees and creat-
ing a structure within Senator
to make bigger, longer-term
bets, said people familiar with
the matter. He has discussed
several ideas with Blackstone,
which in 2014 transitioned its
original seed deal in Senator
into a minority stake.
A person familiar with the
matter said the investment
has been a profitable one for
Blackstone and that the firm is
retaining a stake in Senator.
Mr. Silverman on Thursday
said “Senator 2.0” would fi-
nance deals, increase its focus
on activism and continue to
invest around events such as
mergers and spinoffs in stocks
and debt.man: “Iron sharpens iron, so
one man sharpens another.”
The deal follows weeks of
negotiations withBlackstone
GroupLP, a minority owner of
Senator that benefited from
Senator’s earlier success.
“Doug and Alex built an or-
ganization with a strong cul-
ture of innovation and a deep
pool of talent that should en-
sure its success for many
years to come,” a Blackstone
spokeswoman said in a state-
ment.
Messrs. Klabin and Silver-
man founded Senator in July
2008 after leaving the hedgefund York Capital Manage-
ment. Senator’s returns were
flat that year—then soared
60% in 2009, a blazing start
that led investors to pile into
the fund. By early 2018, the
fund managed $9.5 billion.
Senator’s growth was a boon
for Blackstone, which had
backed the firm in exchange
for a share of its revenue.
The Wall Street Journal in
October reported the relation-
ship between Senator’s co-
founders had grown strained
around a 10% loss in 2018 and
ongoing disagreements over
the best investment strategy
for Senator. The pair had un-
dergone regular counseling for
their relationship from a long-
time performance coach, but
Mr. Klabin moved upstairs byThe founders of $6.9 billion
hedge-fund firmSenator In-
vestment Groupare splitting
up after 12 years together, fol-
lowing a rift that had grown
between the two.
Alexander Klabin, 43 years
old, plans to leave Senator in
the spring to “pursue entre-
preneurial investments” and
spend more time with his fam-
ily, the hedge-fund firm wrote
in an investor letter Thursday.
His departure triggers a spe-
cial chance for the hedge
fund’s investors to withdraw
their money.
Senator co-founder Douglas
Silverman, 41, will continue to
run the hedge fund. Partner
Jay Bharadwa currently heads
credit investing for the fund
and is being promoted to co-
investment chief alongside Mr.
Silverman, according to the
letter.
“After spending almost a
year working to navigate dif-
ferent options and paths to-
gether within Senator, and
with the team operating at a
high level, we both decided
that simple is best and the
time is right,” Mr. Silverman
wrote in the client letter,
which praised Mr. Klabin as “a
brilliant partner, a determined
entrepreneur, as well as a
friend.”
Mr. Klabin wrote in a per-
sonal note to investors that he
had “grown restless to spend
time away from my screen and
start a new journey.” A person
familiar with the matter said
Mr. Klabin could buy private
companies and help build
them. Mr. Klabin also quoted
an Old Testament verse in his
note in reference to Mr. Silver-BYJULIETCHUNGA $6.9 Billion Hedge-Fund Firm’s
Founders Go Their Separate Ways
doesn’t manage—a total of 18
miners died.
Miners don’t report deaths
at joint ventures they don’t
manage, leaving dozens of fa-
talities off the books. Fatalities
that occur during the trans-
portation of mined materials
are also often undercounted.
“We aren’t terribly good as
an industry at reporting all in-
cidents,” said Anglo’s chief ex-
ecutive, Mark Cutifani.
Between 2010 and 2018, the
world’s three largest publicly
listed miners,BHP GroupLtd.,
Rio TintoPLC andValeSA,
reported 117 deaths globally at
their managed operations.
There were an additional 89
deaths of workers during the
same period at joint ventures
the companies weren’t run-
ning, according to a Journal
analysis of company and gov-
ernment records.Anglo AmericanPLC, one
of the world’s largest miners,
gave a full picture of fatalities
related to its operations
Thursday, a major shift in an
industry that typically under-
counts the number of deaths.
A Wall Street Journal inves-
tigation revealed in December
that many mining deaths
aren’t captured by global
safety statistics, making the
industry seem safer to regula-
tors, investors and consumers.
Four Anglo American em-
ployees were killed at its man-
aged operations in 2019, the
company said in its full-year
results. Taking into account
other incidents—including em-
ployees who died off-site in
road accidents, two who died
in “security incidents” and one
at a joint venture that AngloBYALISTAIRMACDONALDAnglo American
Discloses Mine Deaths
Foreign-currencydebtissued
byemerging-market
companiesinthefirstseven
weeksofeachyearSource: Dealogic$6001020304050billion2005 ’10 ’15 ’20Alexander Klabin
plans to leave
Senator. Douglas
Silverman will stay.The Marketplace
ADVERTISEMENTTo advertise: 800-366-3975 or WSJ.com/classifiedsNOTICE OF SALE
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