BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Capital Markets

Gramercy raises $1bn for distressed emerging markets fund

Posted on November 18, 2016

Emerging market assets have been convulsed since Donald Trump’s victory in the US presidential election, which distressed debt investors are now betting will generate rich pickings in the developing world.

Gramercy, a Wall Street money manager, has raised almost $1bn to invest in distressed emerging market debt in anticipation of the damage rising US interest rates and a stronger dollar will inflict on EM corporate borrowers.

“Some of our early thoughts on the election are, if there’s really going to be tax cuts and spending, it’s logical to think we’re going to have higher rates,” said Robert Koenigsberger, Gramercy’s chief investment officer.

Although the Connecticut-based asset manager began tapping investors before this month’s election, the appetite for the fund underlines the nervousness over emerging markets.

Distressed debt specialists buy the beaten-up loans and bonds of weaker borrowers that have been sold by panicked investors, betting either they have fallen too far or that returns could be squeezed out in an eventual bankruptcy process.

Enjoying the tailwind from the low — and sometimes negative — level of interest rates in major developed economies this year, emerging markets have been a powerful draw for investors.

Among hedge funds, for example, those focused on EM have outperformed this year, generating 1.6 per cent, according to Eurekahedge. That compared with 3.6 per cent for the broader hedge fund industry.

Gramercy’s fund will also look for opportunities to provide loans to companies and be able to actively short bonds. Investors in the fund have agreed to hand over their money for five years, a commitment that hedge funds are increasingly pushing for.

While EM specialists have expressed caution on the asset class since the historic election, many have also pointed out that Mr Trump’s fiscal stimulus plan may prove a boon for some of the commodity-producing EM countries and that the president-elect’s threat to impose tariffs is unlikely to translate into practice.

Sergio Trigo Paz, the head of emerging market fixed-income at BlackRock, said last week that investors are likely to turn more neutral on the asset class following Mr Trump’s victory rather than completely ditch their holdings.